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Cotton futures ended lower Tuesday on speculative sales and switch trade as players moved positions out of the spot contract before deliveries begin in less than two weeks, brokers said. The New York Board of Trade's July cotton contract fell 0.95 cent to close at 51.75 cents per lb, dealing between 51.50 and 52.70 cents.
New-crop December slid 1.24 to 57.54 cents, trading from 57.25 to 58.50 cents. Distant months declined 0.38 to 1.51 cents. Mike Stevens, an analyst for brokers SFS Futures in Mandeville, Louisiana, said cotton was overdue for a pullback after posting increases in 10 of the last 12 sessions. "It was time for a correction," he said. "We let some people out who wanted to get out."
Fundamentally, the market was looking at a severe dry spell in cotton growing areas of the US and China, the world's biggest consumer of the fibre. A report by Alan Feild of brokers iamhedged.com in Memphis, Tennessee, said the hot and dry weather may make it hard for the US to harvest a crop of 19 million (480-lb) bales or higher.
Analysts said that combined with robust demand, cotton prices should stabilise and eventually push higher over the next few sessions. Speculative sales deflated cotton futures at the start and touched off automatic sell orders on the way down where it ran into some underlying consumer and trade buying, dealers said.
"Any kind of sell-off is usually seen by the trade as an opportunity to buy it back," one said. On switch trade, open interest in July fell 11,800 to 57,634 lots as of June 12 while interest in December went up 9,021 to 89,875 lots.
Another source of pressure for the market would be the weakness in other markets which has served to cast a pall on cotton as well, the traders said. Brokers Flanagan Trading Corp put resistance in the July contract at 52.15 and 52.50 cents, with support at 51.65 and 51.10 cents.
Floor dealers said estimated final volume amounted to 45,000 lots, down from Monday's count of 50,885 lots. Open interest fell 1,874 to 176,537 contracts as of June 12.

Copyright Reuters, 2006

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