Cotton futures slipped heading into Wednesday's close, giving up earlier gains that led to a one-month high, as speculative profit takers decided to get out when resistance proved a challenge, traders said. Brokers noted that speculative buying pushed open interest in cotton futures to an all-time high as of Wednesday's open.
When chart resistance was hit at medium-term highs late in the day, cotton was ripe for selling. "It was a big jump to a new record and that was primarily spec buying and trade selling. So, the speculators were full to the gullet and that's why the market became vulnerable. The market couldn't advance any more than it did," said Mike Stevens of Swiss Financial Services in Mandeville, Louisiana.
ICE Futures open-outcry March cotton contract declined 0.41 cent to finish at 69.02 cents a lb, setting a range between 68.90 and 69.85 cents, its highest level since November 7. May cotton lost 0.36 to close at 70.71 cents. The rest were even to down 0.45 cent, with several contracts setting new lifetime highs early in the day.
ICE March electronic cotton futures were down 0.81 cent at 68.62 cents a lb by 2:38 pm EST (1938 GMT), with volume in the contract moderate at 11,473 lots. Traders said ICE estimated cotton turnover at about 19,000 lots on Wednesday.
As of Wednesday's floor open, ICE data showed open interest at a new record of 259,197 lots, an 10,125-lot increase. The previous record was hit in November at 251,603 lots. Cotton prices had been climbing gradually since the new year began with help from talk of commodity indexes rebalancing their weightings in favour of agricultural products, including cotton futures.
"You don't really know when someone is buying it why they are buying it. But we do know that there's new speculative money has been moving into cotton and has been for a couple of weeks. The high open interest figure is an indication of that," Stevens said.
With its gradual ascent to successive new one-month highs on the benchmark contract, traders said the buying volume began to slow down at session highs. Speculators saw the opportunity to sell out heading into the close, triggering stop-loss sell orders on the way down.
In other news, cotton players were watching for news from the annual Beltwide cotton conference in Nashville, Tennessee, which is running through January 11, for any indications about estimates for next year's crop.
Thursday's weekly export cotton sales from the USDA were expected to show about the same result as last week at around 75,000 to 100,000 running bales, with high cotton prices were slowing sales, traders said. On Friday, the US Department of Agriculture is set to release its monthly supply/demand report at 8:30 am EST (1330 GMT). Because much of the 2007/08 US crop has already been harvested, many players in the cotton trade expect few significant changes to the USDA's latest data.
Brokers Flanagan Trading Corp said it pegged resistance in the March open-outcry cotton contract at 69.30 cents, 70 cents and 70.80 cents, and sees support at 68.60 and 67.40 cents. Open-outcry cotton volume on Tuesday was 5,363 lots with screen trade at 29,250 lots.
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