New York cotton settles lower

Cotton futures reeled from investor sales to finish lower on Tuesday while the trade digested news that regulators will investigate a searing run-up in the market that occurred in the first quarter of the year, brokers said.
The Commodity Futures Trading Commission announced a series of steps to boost oversight and transparency in volatile agricultural futures markets, including an investigation of the cotton price rally in February to March 2008 and more detailed reporting by index and swap dealers in futures markets.
The benchmark July cotton contract sank 1.23 cents to end at 64.21 cents per lb, trading from 63.10 to 65.01 cents. The December cotton contract fell 1.33 cents to finish at 72.83 cents, ranging from 71.65 to 73.76 cents.
Volume in the July contract stood at 22,497 lots at 3:03 pm EDT (1903 GMT) while December volume was at 16,001 lots. "I think it's closing the barn door after the mule got out," Keith Brown, president of commodity firm Keith Brown and Co in Moultrie, Georgia, said about the move by the CFTC.
"There's no disclosure and you can corner the market because there's no limits in swaps," added Frank Weathersby, an analyst for brokers Affinity Trading in Fort Walton Beach, Florida. "You wouldn't know who has a lopsided position (in cotton)."
A commodity swap is an agreement under which a floating, market or spot price is exchanged for a fixed price over a specified period. The user of a commodity would secure a maximum price and agree to pay a financial institution this fixed price.
In return, the user gets payments based on the market price for the commodity involved. Some traders said part of the selling seen in cotton on Tuesday may have been caused by some investors liquidating positions after the CFTC's move.
But others feel the bulk of the pressure came from options-related selling which spilled over into the futures ring. Brokers Flanagan Trading Corp sees support in the July cotton contract at 63.60 and 62.50 cents, with resistance at 64.30 and 65 cents. Volume traded Monday in the cotton market hit 41,443 lots, exchange data showed. Open interest in the cotton market fell 1,434 lots at 271,977 lots as of June 2, it added.