NYCE cotton futures settled weakly Friday on options-related selling by commercial accounts, although trade support enabled fibre contracts to pare its losses, analysts said.
July cotton eased 0.54 cent to conclude at 63 cents a lb, ranging between 62.50 and 63.90 cents. December lost 1.37 cents to 58.71 cents. The rest slumped from 0.40 to 1.60 cents.
Floor sources said a top cotton merchant dumped thousands of lots of December call option contracts and then turned around to purchase puts.
"That just crushed the market," said Joe Carney of brokers iamheged.com based in Memphis, Tennessee.
The impact on the futures ring, especially in the new-crop December 2004 cotton contract, was to drag the market south, since the action indicated the merchant seems to think prices may slide in the weeks ahead.
Traders said overnight falls in cotton prices in China, which has emerged as a major buyer of US cotton, added to the negative sentiment felt in futures.
Carney and Sharon Johnson, cotton expert for Frank Schneider and Co Inc in Atlanta, said the problem with the current weakness in futures is that no weather premium has been built into the market.
A broker said: "It's getting drier in Texas. If weather problems hit the crop here, there is no premium in the December contract to reflect that."
Analysts said they will be looking toward the weekly USDA export sales report next week to check on the level of US upland cotton shipments now that a government marketing program is expected to help boost exports.
US cotton upland shipments hit 188,700 RBs, below trade belief it would run from 280,000 to 350,000 RBs.
Dealers said support in the July contract was at 62.60 and 61.80 cents, with resistance seen at 63 and 64 cents.
Floor dealers pegged estimated volume at a measly 6,500 lots, versus the prior tally of 3,583 contracts. Options volume hit 7,700 lots. Open interest in the cotton market fell 603 to 80,747 lots as of May 20.
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