Markets: News  

Cotton futures rally to more than three-week high

CHICAGO (MarketWatch) -- Cotton futures rallied Friday to mark their highest close in more than three weeks, buoyed by news the economy in China, the world's largest consumer of cotton, grew as expected in the second quarter.

"Talk of a solid GDP number in China sparked ideas of improved export demand from the U.S.," said Darin Newsom, a senior analyst at Telvent DTN.

Cotton for December delivery (CTZ2) saw a 3.9% gain Friday to settle at 72.66 cents per pound on the ICE Futures U.S. exchange.

That was the highest close for a most-active futures contract since June 20, according to data from FactSet.

China's economy cooled to its weakest rate of growth in more than three years in the second quarter, expanding 7.6% from a year earlier, in a result that matched expectations. Read more on China GDP.

The U.S. Department of Agriculture on Wednesday cut its world cotton stocks forecast by 3% for the 2012-2013 crop year. It also reported that total world consumption was "virtually unchanged" as reductions for China and the U.S. are offset by increases for India, Pakistan and Vietnam.

A private organization, the International Cotton Advisory Committee, released a report on July 2 that predicted the cotton crop, and international cotton trade, would shrink for the current crop year. It also forecast that global cotton mill use would fall to its lowest level in eight years.

In the USDA report, domestic ending stocks were lowered a bit, "but nothing dramatic," said Newsom. "Global ending stocks also fell, but remain larger than last year."

Bottom line, the rally in cotton "looks like a short-term bounce in the market with ideas something may be brewing on the supply/demand side," said Newsom.

However, weather isn't likely much of a factor in cotton's price climb, according to some analysts -- unlike corn futures, which have rallied as dry weather in the Midwest fueled concerns over crops in the region.

Instead, cotton's strength may be due more to overall market fluctuations over the past year in trading.

"In cotton you have a commodity... that has lost over 30% of its value in less than 12 months," said Chris Kraft, a private investment manager and futures trader based in Nashville.

"The really drought-stricken areas of the U.S. have been north of cotton country, so I believe economic factors will move cotton prices higher," he said. "If higher prices were coming to build in a weather premium, it should have happened by now."