NYCE Cotton Closes Five Year High : Global

NYCE cotton futures vaulted higher and closed at a five- year high despite a bearish USDA supply/demand data. Massive options-related and trade buying reversed an early downturn in cotton caused in part by a bearish USDA supply/demand report.

The USDA raised its estimate of the US 2003-04 cotton crop to 17.56 million (480-lb) bales and kept its estimate of China''s cotton harvest unchanged at 25.5 million bales. Cotton rallied despite the funds'' being overly long and record open interest in the market. Open interest shot up 3,287 to a new record of 103,853 lots as of October 9, surpassing the previous mark of 100,781 lots set last October 2.

Expectations of massive Chinese cotton imports in 2003-04 powered futures higher. Cotton prices in the China National Cotton Exchange sky-rocketed as players came back from a week-long holiday. China is the biggest producer and consumer of cotton in the world and fears of a small crop in the country have fuelled a rally in New York cotton futures. Cold and wet weather has decimated the Chinese cotton crop of late.

The active December contract moved higher against expectations of a correction with no let up seen in chasing it on every dip. The channel seen in the chart above shows the trend currently with a resistance seen at 74.50 cents and support at 67 cents. We were expecting a correction to set in followed by a rally higher from there again. However, prices rallied sharply without the expected correction.