NEW YORK: Cotton futures sank by more than 4 cents on Wednesday to post their largest two-day slide since December 2008 as technical signals and an improving production outlook prompted waves of long liquidation, dealers said.
The most-active December cotton contract on ICE Futures US settled down 4.62 cents, or 5.2 percent, at 84.24 cents a lb.
Second-month prices narrowly missed falling by the exchange limit for a second straight session. On Tuesday, cotton closed down the exchange limit as supply worries eased and a weaker technical outlook prompted selling.
Prices have plunged 8.62 cents, or 9.3 percent, over the last two days, taking back the gains from a rally that started two weeks ago.
Dealers said warming weather in the Southeast region of the United States pressured prices, as did expectations of a bumper crop in No. 2 cotton producer India.
Technical weakness was seen after a rapid rally in recent sessions left fiber in technically overbought territory and prices failed to push past resistance above a five-month high touched last week.
What started on Tuesday as profit taking on those technical signals turned into two sessions of long liquidation as investors who had piled into the fiber market turned sellers, dealers said.
"It's like 10 elephants trying to head toward a three-foot door at the same time," said Peter Egli, director of risk management for Plexus Cotton Ltd, a British-based medium-sized merchant.
Open interest totaled 209,987 contracts on Tuesday, down from the 214,378 during the previous session, the most recent ICE data showed.
Speculators had lifted their bullish bets in cotton to the highest in five months in the most recent reporting week, according to Friday's US weekly government data.
Wednesday's intraday low of 84 cents was the weakest level in five weeks.
Cotton prices had been trading in a tight range leading up to a technical break-out on Aug. 7 and a rally that lifted cotton up nearly 9 percent during the next eight sessions and to a five-month high of 93.72 cents touched last week.
Investors have sold aggressively since then as worries about the US and global production outlook have eased. Last week's monthly US government forecast lent fuel to the rally as the USDA lowered its forecasts for US and global output.
But a weekly US crop report on Monday was better than expected, and warmer weather in the Southeast has eased concerns that heavy rains will further reduce crops in the key growing region.
Expectations of bumper production in India, the world's second largest producer, and worry the sudden run-up would dent demand added to the weakness.
Prices climbed to one-year highs in mid-March as speculators boosted their bullish bets to the highest levels in five years. Second-month prices remain up about 11 percent since the start of the year.
After a steep run-up in early 2011 to the highest levels since the US Civil War, cotton posted two years of losses, as lower-priced, synthetic fibers eroded demand and global surpluses grew.
Now, the world is forecast to hold record global inventories by the end of the crop year in July 2014.
But more than 60 percent of those are expected to become part of China's stocks and are considered unavailable to the global marketplace.
Beijing launched a stockpiling program in 2011, paying above global prices to support farmers.
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