Cotton futures finished lower Wednesday in moderate business as trade sales pressured the complex away from the two-month peak hit the previous session, dealers said.
The New York Board of Trade's key March cotton contract ended off 0.30 cent at 54.94 cents a lb, after dealing from 54.35 to 55.25 cents.
May eased 0.06 cent to 55.75 cents, while the rest of the board closed mixed from down 0.10 to up 0.55 cent.
"Speculators continue to buy the market and the trade continues to sell it. We're in a new income tax year so the farmers that have held cotton over are now pushing that on the market, so that's why the commercials are selling it," said one broker.
John Flanagan of Flanagan Trading Corporation wrote in a daily market comment that index funds appeared to be increasing their allocations of funds for agricultural commodities, cotton included, and trend following funds were in the process of reversing from short to long, which should move cotton higher in the near-term.
Overall, traders noted that the US needed to ship some cotton in the weekly export sales to meet the USDA target.
The US Department of Agriculture has projected US cotton exports in 2005/06 (August/July) to hit a record 16.4 million (480-lb) bales, with production seen at 23.7 million bales.
Gary Adams, director of economics and policy analysis for the US industry group National Cotton Council, said that from 1995 to 2003, world production and consumption ranged from 85 million to 100 million bales with about 25 million to 30 million bales traded.
That has ballooned sharply. In 2004, the world cotton crop reached a record 120 million bales and this year would stand between 110 million and 115 million bales.
In other news, the New York Board of Trade's spec/hedge report for cotton showed speculators were 12.3 percent net long for the week ending December 30, from 8.3 percent net long the previous week.
Flanagan pegged resistance in the March contract at 55.65 and 56.50 cents, with support seen at 55.10 and 54.65 cents. Floor dealers said estimated final volume reached 10,000 lots, against Tuesday's official count at 21,985 lots. Open interest increased 4,059 lots to 109,473 contracts as of January 3.
On Tuesday, cotton futures settled at a two-month peak as fund buying boosted the complex in mostly technical business, while a softer US dollar supported the rise, sources said.
The New York Board of Trade's key March cotton contract settled up 1.05 cents at 55.24 cents a lb, its highest level since November 3, 2005. Trading ranged from 54.40 to 55.25 cents. May rose 1.11 to 55.81 cents and back months closed with gains of 0.90 to 1.00 cent.
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