Cotton Prices End Higher
February 20 2018 - 4:03PM
Dow Jones News
By Julie Wernau
Cotton futures moved sharply higher Tuesday as a recent pickup
in speculator selling ran out of steam.
Cotton for May delivery rose 2.3% to end at 78.96 cents a pound
on the ICE Futures U.S. exchange, its highest close since Jan. 26.
Cotton mills that have been waiting for futures to dip lower in
order to fix sales saw a brief reprieve during a global selloff in
markets over the last three weeks.
Peter Egli, a risk manager at Plexus Cotton Ltd. was encouraging
clients last week to fix those sales, with signs of a potentially
bullish fundamental picture on the horizon for cotton that is just
now being planted in the U.S.
While U.S. sowings are expected to increase this year based on
an early survey, a large number of acres are experiencing a drought
due to the La Nina weather phenomenon, says Mr. Egli.
The decision by farmers to plant more cotton would follow a year
in which U.S. cotton acreage expanded 24%. The U.S. National Cotton
Council says another 3.7% increase is likely.
Many cotton buyers entered into contracts last year to purchase
U.S. cotton at a price to be determined at a later date, a common
practice in the business. Most were bearish on cotton prices and
figured they could pay a cheaper price in the future.
Cotton merchants who sold cotton on call to mills have been
waiting on the mills to fix those sales to a price in the futures
market. According to the U.S. Commodity Futures Trading Commission,
7.6 million bales are unfixed in May and July contracts. As of last
week, enough speculative buyers betting on higher prices had exited
those positions that there are now fewer potential sellers than
buyers in the trade, said Mr. Egli.
"If the specs should sit on their hands or even buy again, or
even if they do nothing and stay the way they are, the trade still
needs sellers to get out of shorts," he said. "If you have a few
buyers and no one is selling, they bid the market up."
In other markets, raw sugar for May ended up 0.1% at 13.29 cents
a pound, May cocoa was up 0.7% at $2,148 a ton, May arabica coffee
closed down 0.6% at $1.197 a pound and May frozen concentrated
orange juice was off 2.4% at $1.4625 a pound.
Write to Julie Wernau at julie.wernau@wsj.com
(END) Dow Jones Newswires
February 20, 2018 15:48 ET (20:48 GMT)
Copyright (c) 2018 Dow Jones & Company, Inc.