Cotton rebounds from USDA-fuelled losses as sentiment improves

Investing.com - Cotton futures rose for the first time in six days on Monday, rebounding from losses suffered in the wake of a U.S. government report forecasting increased global cotton production and a decline in consumption.

On the ICE Futures U.S. Exchange, cotton futures for March delivery traded at USD0.9219 a pound during European afternoon trade, rallying 1.74%.

It earlier rose by as much as 2.2% to trade at a two-day high of USD0.9302 a pound. On Friday, prices fell to USD0.9000 a pound, the lowest since December 29.

Agricultural commodities were boosted by outside influences after Greek lawmakers approved on Sunday a set of spending and wage cuts needed to secure the country’s EUR130 billion bailout package and avoid a sovereign debt default.

Attention now shifts to a meeting Wednesday of euro zone finance ministers, who will discuss the approval of the debt-laden country’s second bailout before a March 20 deadline.

Greece has a EUR14.5 billion bond repayment due on March 20 and requires the bailout funding in order to be able to make that payment and avoid a messy default.

The news lifted the euro close to an eight-week high against the U.S. dollar, while the dollar index, which tracks the performance of the greenback against a basket of six other major currencies, was down 0.35% to trade at 78.82.  

A weaker dollar boosts the appeal of U.S. crops to overseas buyers and makes commodities more attractive as an alternative investment.

Demand for cotton, as a non-food agricultural commodity, is seen as more closely linked to economic conditions and consumer sentiment than that for other farm crops.

Cotton prices tumbled nearly 3.5% in the final two trading sessions of the previous week after the U.S. Department of Agriculture said in its World Supply & Demand Report published Thursday that global cotton production of the fiber was expected to total 123.34 million bales, compared to an estimate of 122.84 million bales in January.

The upward revision reflected higher production in India and Pakistan, as well as lower global consumption.

The USDA cut its outlook for world cotton consumption in the 2011-12 marketing season to 109.71 million bales, from 109.99 million bales, citing a decline in domestic use in the U.S., Thailand, Mexico and Vietnam.    

Meanwhile, the U.S. National Cotton Council forecast Friday a 2012 U.S. cotton crop of 18.30 million bales, with production increasing by 17% from a year earlier.

The industry group said it expected global cotton production to total 119.4 million bales, while global demand was forecast at 113.8 million bales.

The NCC said that cotton's 2012 outlook will be influenced primarily by China's national reserves stocks, uncertainty over the general economy and weather developments in the southwestern U.S.

In the U.S., West Texas has been suffering from a drought for more than a year. The area normally accounts for about one-third of U.S. cotton production.

China is both the world’s largest producer and consumer of the fiber. Cotton traders have been focusing on prospects for increased Chinese demand in recent months after the country started a cotton stockpile in September to protect domestic farmers' interests.

Elsewhere, on the ICE Futures Exchange, coffee futures for May delivery added 0.2% to trade at USD 2.1900 a pound, while sugar futures for March delivery gained 0.65% to trade at USD0.2482 a pound.