Cotton futures finished with hefty losses on Monday, caught in the downdraft of selling that pulled most other commodities lower with the euro as Greece appeared unlikely to reach a deal to restructure private-sector debt.
"This was definitely a risk-off kind of day, because everything was down -metals, grains, soybeans, energy. It started in Asia, spread to Europe and then hit here, and reflects concerns with Greece getting additional financing," said Sharon Johnson, senior cotton analyst at Penson Futures in Atlanta.
Benchmark March cotton on ICE Futures US slid 1.46 cents, or 1.53 percent, to end at 94.15 cents per lb, and set a range between 94.11 to 96.30. Selling was heavy. Volume in the March contract was 13,422 by the end. Nevertheless, support was in place with a double-bottom that formed with the January 12 low, suggesting prices were unlikely to keep falling in the short term.
"Cotton got caught in this broader sell-off, but there's a lot going on this week and next week that will determine whether prices bounce off this low," said Johnson. Greece's unresolved debt restructuring knocked the euro from a six-week high against the US dollar and drove it to a 4-1/2-month low against the safe-haven Swiss franc, along with driving most commodities lower.
Regarding factors specific to cotton, the exercise of rolling March futures into May contracts begins in earnest this week. According to brokers, the Rogers index fund started rolling out of March futures and into May cotton on Monday, Deutsch Bank will start rolling on Wednesday, and Goldman starts next Tuesday.
Johnson noted that the size of March's open interest in proportion to May's is not as large as is typical. "So, I don't think we have as many longs to liquidate as we typically have, and that may work to cotton's advantage," she added. Next week, the US Department of Agriculture releases its monthly cotton supply and demand report on Thursday February 9, the last trading day for March cotton options comes on March 10, and on Friday, US industry group National Cotton Council will issue its annual survey of potential US cotton plantings in 2012.
"The survey by the NCC should start people focusing on the spring planting season," a dealer said. Also this Friday, the US Labour Department reports on employment for January. A Reuters poll put economists average forecasts at 150,000 new jobs created for the month.
Open interest, an indicator of investor exposure, rose to 167,490 lots as of January 27, ICE Futures US data showed. On Thursday, it stood at 166,088 lots, having posted a rise of almost 10 percent so far this year. Friday's volume stood at 13,567 lots, off Thursday's tally of 14,758 lots, exchange data showed.
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