Cotton Rises as Low Price May Spur Demand, Dry Spell Hurts Crop

By Yi Tian

July 24 (Bloomberg) -- Cotton rose on speculation that the lowest price in eight weeks helped spur demand from mills and on concern dry weather may limit production in India, the world's second-largest producer of the fiber.

Cotton tumbled yesterday to 70.78 cents a pound, the lowest since May 28, and has dropped 6 percent this month. Demand from mills revived when futures fell below 72 cents, said Mike Stevens, a Swiss Financial Services analyst. Delayed planting in India buoyed concern that world output will suffer, said John Flanagan, president of Flanagan Trading Corp. in Fuquay-Varina, North Carolina.

``Cotton is building a base from which prices can move higher,'' Flanagan said. ``Prices are low enough to attract commercial buying and to discourage selling from speculative funds.''

Cotton futures for December delivery rose 0.94 cent, or 1.3 percent, to 73.86 cents a pound on ICE Futures U.S., the former New York Board of Trade. The most-active contract is up 16 percent from a year ago.

So far, dry weather has delayed cotton planting in India's Maharashtra and Gujarat states, the largest cotton producers. Farmers sowed cotton on 5.8 million hectares (14.3 million acres) as of July 18, 17 percent less than a year earlier, according to the latest data from the farm ministry.

``Cotton planting in India is down,'' Flanagan said. ``That's huge.''

India Monsoon

The June-September monsoon, which accounts for four-fifths of the nation's annual rainfall, was 33 percent below average in the week ended July 23. Showers in July account for a third of the rainy season and are crucial for sowing crops.

Overnight rains in Maharashtra and Gujarat were not enough to ease concern that the crop will be hurt, said Sharon Johnson, a senior analyst at First Capitol Group in Atlanta.

``You cannot put on a bandage when you get your arm cut off,'' Johnson said. ``We need a lot of rain and we need it now.''

Tropical storm Dolly, which made landfall as a hurricane in southern Texas yesterday, had only a ``slight'' effect on prices today, Flanagan said. Texas is the biggest U.S. cotton-growing state.

``Not a lot of cotton is exposed to Dolly, 250,000 acres at most,'' he said. ``We won't lose that much.''

Texas Crop

Growers in Texas planted 4.7 million acres of cotton this year, according to the U.S. Department of Agriculture. West Texas is the largest cotton producing-region in the state.

No figures will be available on damage to the crop ``until the fields have dried out and cotton has regained its stature after being blown over,'' First Capitol's Johnson said. The damage would be ``insignificant,'' even if a majority of the crop was lost in the southern tip of Texas in the Rio Grande Valley, she said.

Flanagan expects cotton to trade between 71 cents and 74 cents a pound until Aug. 12, when the USDA releases a monthly cotton report. Johnson predicted the market will stay in its ``comfort zone of 72 cents to 74 cents, a penny above and below.''

To contact the reporter on this story: Yi Tian in New York at ytian8@bloomberg.net.