Cotton eases up but remains close to 5-month low; USDA report eyed

Investing.com - Cotton futures were up for the first time in seven days on Thursday, as traders snapped up contracts after futures moved into oversold territory ahead of the release of a U.S. government crop report later in the day.

On the ICE Futures U.S. Exchange, cotton futures for July delivery traded at USD0.8617 a pound during European afternoon trade, gaining 0.4%.

It earlier rose by as much as 0.55% to trade at a session high of USD0.8628 a pound. Prices touched USD0.8532 a pound on Wednesday, the lowest since December 15, 2011.

Cotton prices plunged to the lowest level since mid-December on Wednesday, as farm commodities came under pressure from broader market risk aversion and a stronger U.S. dollar, amid concerns over political uncertainty in Greece and fears over the health of Spain’s banking sector.

Cotton, as an industrial commodity, is more affected by macroeconomic jitters than many other crops.

Indications of slowing demand for U.S. supplies and market talk of a flurry of speculative selling further weighed on the commodity.

But prices recovered in early trade on Tuesday, as traders closed out bets on lower prices after futures moved into oversold territory, a move known as covering a short position.    

Cotton traders were looking towards the USDA’s Supply and Demand Estimates Report for May, scheduled for release later in the day.

The report will show the first estimate of market conditions in the coming 2012-13 marketing season, which begins in August 2012 and ends in July 2013.

Markets are expecting cotton output in the U.S to be bigger in the marketing year that starts August 1 as yields rise.

Production is estimated to total 16.67 million bales, U.S. export sales are forecast to come in at 11.83 million bales, while ending stocks in the U.S. are expected to stand at 4.52 million bales.

Also Thursday, cotton traders were awaiting U.S. export sale data, to gauge the strength of global demand for U.S. supplies.

While export sales have been negative for several weeks because of cancellations, analysts said the USDA's annual export forecast has already nearly been met for old crop cotton.  

The U.S. is the world’s biggest exporter of cotton and the third largest producer of the fiber, trailing only China and India.

Elsewhere, on the ICE Futures Exchange, coffee futures for July delivery rose 0.75% to trade at USD1.7657 a pound, while sugar futures for July delivery dipped 0.15% to trade at USD0.2039 a pound.