China, the world’s largest producer of the fiber decision to reduce planting acreage by nearly 9% in 2014 as resulted in sharp rise of cotton futures in early trade Tuesday.
Cotton for March delivery rose 1 cent, or 1.2%, to 84.67 cents a pound. Futures had risen as much as 1.7% in overnight trading.
The China Cotton Association said that plantings would decline to an estimated 4.2 million hectares for the third year in a row. Sharon Johnson, a senior cotton specialist at KCG Futures in Atlanta, said that the resulting yields from China could reach their lowest level since 2005.
There’s been a lot of talk about China changing its policy toward cotton, Ms. Johnson said.
China indicated last year that it would move away from its traditional stockpiling system, replacing it with a farmer subsidy system similar to that of the U.S.
Cotton futures’ gains were also likely driven by short-covering and technical signals, brokers and analysts said. Prices fell 1.4% in the previous week.
Some buying may have also been driven by traders positioning ahead of a U.S. Department of Agriculture report due Friday that will include a final assessment of production numbers for the previous growing season. However, the USDA’s December report states that cotton growers produced 13.1 million bales in the 2013 crop year
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