Cotton Surges Exchange Limit to Record on China Demand Gain

Cotton soared to the highest price since the commodity began trading in New York 140 years ago, as demand for imported fiber increased from textile mills in China, the world’s largest user.

The China Cotton Association said today that inventories held by non-government entities fell 48 percent in September to 107,000 metric tons from August. More than half of U.S. exports last week went to China to meet mill demand, the U.S. Department of Agriculture said. Cotton futures have jumped 52 percent this year on signs that world use may outpace shrinking supply.

“It’s global demand, especially from China,” said John Flanagan, the president of Flanagan Trading Corp. in Fuquay-Varina, North Carolina. “Even at these prices, we’re not rationing demand yet.”

Cotton for December delivery rose by the 4-cent limit imposed by ICE Futures U.S., gaining 3.6 percent to settle at $1.1487 a pound as of 2:30 p.m. in New York. Contracts for delivery in March, May and July also rose by the daily maximum. ICE said in a statement it will increase the trading limit to 5 cents starting tomorrow.

The December futures reached a record for a most-active contract. The highest for any contract was in April 1995, when the front-month May contract touched $1.172 a pound.

Trading in cotton options was halted by the exchange, which determined that the synthetic price change for contracts was at least two times the daily limit, ICE said today in a statement.

Cotton first began trading in the city when the New York Cotton Exchange was founded in 1870, according to “A History of Futures Trading in the United States,” a Feb. 5 research paper by Joseph Santos, a professor of economics at South Dakota State University. The bourse merged with the Coffee, Sugar & Cocoa Exchange Inc. in 1998 to form the New York Board of Trade, later acquired by ICE.

Chinese Demand

In China, cotton advanced 4 percent to 24,480 yuan a ton today on the Zhengzhou Commodity Exchange, the maximum allowed.

“Merchants tell us the panic buying out of China has gone into the hysterical stage,” Varner Bros., a brokerage in Cleveland, Mississippi, said yesterday in a note.

China’s National Development and Reform Commission said it is taking measures to crack down on price manipulation in the market, the China Cotton Association said on its website.

Price gains were “not supported” by fundamentals, the association said, citing the commission, which met earlier today.

Cotton stockpiles held at warehouses monitored by ICE are up 25 percent since Oct. 8 at 11,182 bales as of yesterday, exchange data show. Still, inventories are 99 percent lower than they were on June 1.

The Cotlook A Index, which reflects the average of the five cheapest cotton prices offered at Far East ports, rose 0.6 percent to $1.246 today, shy of the record $1.252 on Oct. 12.

Before it's here, it's on the Bloomberg Terminal. LEARN MORE