Cotton futures rise on support from grains, stock markets

NEW YORK, USA - Cotton futures rose on Tuesday in sympathy with climbing grains markets in Chicago and equities markets worldwide.

The benchmark March cotton contract on ICE Futures U.S. closed up 0.5 cent, or 0.9 percent, at 59.31 cents a lb, gaining throughout much of the session as it recovered from dropping to an over five-year low of 58.53 cents on Monday.

Trading volumes were again subdued ahead of the U.S. Thanksgiving Day Holiday on Thursday when cotton trading would be closed. Trading of the contract will resume with a delayed opening on Friday.

U.S. soybean futures hit a one-week high, and stock markets gained after U.S. third-quarter gross domestic product growth was revised higher.

Cotton often tracks price fluctuations in grains, with which it competes for acreage, and tracks U.S. equities markets.

"We're getting a nice little short-covering rally, because soybeans are up, stocks are up, and the dollar is down," said Jobe Moss, a broker with MCM Inc. in Lubbock, Texas.

Losses in the greenback, with the U.S. dollar index declining against a basket of key currencies, supported buying of dollar-traded commodities as the currency's weakening made them less expensive to holders of other currencies.

Despite a bearish outlook for rising U.S. inventories and expected declining Chinese demand, analysts for French banking group Societe Generale said they see cotton prices as "undervalued" and that global demand will rise amid sharply lower prices.

"As demand for products builds, and given the steep rout in cotton prices that we view as overdone, we expect cotton prices to begin rising before settling into the 65-70 cents/lb range," they said in a report on Tuesday.

The second-month is down 30-percent year-to-date after farmers boosted acres in key producers and worries have mounted over waning demand in China, the world's largest textile market, due to a government policy overhaul.