ICE cotton futures tumbled on Monday, as investors took profits after last week's steep gains when prices climbed almost to a one-year high touched in mid-March. The most-active December cotton contract on ICE Futures US closed down 0.45 cent, or 0.5 percent, at 88.99 cents, finishing down for the first time in four sessions. The third month contract reached 89.56 cents on Friday, its highest level since April.
The ICE front month July contract plunged 3.86 cents, or 4.2 percent, to close at 87.43 cents a lb, after touching 92.58 cents on Friday, the strongest level since hitting a one-year high of nearly 94 cents in mid-March. Investors cashed in after last week's rally when options-related dealings and short-covering drove front-month prices to an almost 8 percent gain. Grower hedging added pressure, and mill buying was quiet on Monday, dealers said.
"You got so high that hedging came in. With no one pushing July higher and December facing selling pressure, the market came apart," said Ron Lawson, a partner at commodity investment firm LOGIC Advisors. The day's gyrations put December at a premium of 1.56 cents a lb, compared with a discount of 1.85 cents during the previous session. A big dip in open interest in the July contract relieved concern over tightness in near-term supplies that are able to be delivered when the contract expires on July 9, especially as certified stocks continued their climb, dealers said.
Exchange stocks reached 543,448 bales on Friday, according to the latest exchange data, the highest level since June 2010. Expectations that US plantings had picked up on improving weather in the world's top exporter, added pressure, dealers said. A US Department of Agriculture (USDA) weekly crop progress report released after the market closed confirmed that this year's plantings were not far below previous years' average.
Last week, the USDA forecast lower-than-expected US stocks in the 2013/14 crop year through July 2014, due to decreased output amid unfavourable growing weather in drought-plagued Texas. The report was seen as bullish for the US market and supported prices, though it also reaffirmed expectations of a record global inventory by the end of the crop year.
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