NY cotton up on encouraging US data

Cotton futures in New York rose for a second straight day on Thursday, bucking the weak trend in other major commodities, after strong U.S. consumer spending data in July indicated more demand ahead for the industrial commodity.

Short-covering prior to the longer weekend, extended by Monday's Labor Day holiday, also provided support, traders said.

"Cotton was ... moving in defiance against lower oil and stock prices, as the U.S. consumer spending data and the Labor Day holiday set a bullish tone for the market," said Sharon Johnson, cotton specialist for Knight Futures in Atlanta, Georgia.

U.S. economic data showed consumer spending enjoyed its biggest rise in five months while the number of Americans filing new claims for jobless benefits held steady last week.

The benchmark December cotton contract on ICE Futures U.S. settled up 0.29 cents, or 0.4 percent, at 76.94 cents per lb. The contract is 2 percent higher on the week, and is poised to finish August up more than 7 percent for its biggest monthly gain since February 2011.

U.S. crude oil fell nearly 1 percent on the day while the Thomson Reuters-Jefferies CRB index, which groups 19 commodities, shed nearly a quarter percent.

This week alone, December cotton rose more than 1 percent on two sessions - Monday and Thursday - on worries about the potential harm Hurricane Isaac could cause to crops in the key U.S. cotton growing states of Alabama and Mississippi.

Isaac, downgraded to a tropical storm on Thursday after its landfall on Tuesday, has not been reported to have inflicted any major damage on cotton crops as yet, although farmers in Arkansas were harvesting their rice crop at breakneck speed to limit damage from the storm.

Fundamentally, the U.S. cotton market is well supplied, with total output expected to grow 14 percent to over 17 million bales in the marketing year to July 2012.

Traders say the global surplus in the textile market is also expected to hit record levels.

While the supply situation is comfortable, investors have struggled with conflicting market signals of late. Some see potential for supply scares if weak monsoon rains curb output in key cotton grower India, forcing the government to restrict exports.

Hedge funds and other speculative investors doubled the size of their net long position in U.S. cotton to 12,333 lots in the week to Aug. 21, data from the Commodity Futures Trade Commission showed.

That is the most bullish position for hedge funds in cotton since February, and a dramatic turnaround from a net short just three weeks ago that contrasts with the weak supply-and-demand fundamentals.