Cotton futures settled at a 2-1/4 year low Wednesday on investor liquidation tied to the euro zone debt crisis and news that China believes it does not need financial stimulus to sustain growth, brokers said. Benchmark July cotton on the ICE Futures US exchange fell 1.89 cents, or 2.6 percent, to end at 70.91 cents per lb after ranging from 70.38 to 73.15 cents.
It was the lowest settlement for the spot cotton contract since early February 2010, according to Thomson Reuters data. New-crop December cotton lost 1.02 cents to finish at 70.28 cents, dealing between 69.42 and 71.57 cents. Jobe Moss, a long-time analyst for brokers and merchants MCM Inc in Lubbock, Texas, said the market crumbled over news that stocks and commodities sold off due to fears over the deepening euro zone debt crisis and that China does not need massive fiscal stimulus to stabilise growth.
"Those two things set off a negative cloud over commodities," said Moss. "They're seeing an economic contraction and it (the selling) is contagious." Cotton had staged a modest recovery over the past few sessions, but that quickly dissipated when the news from Europe and China hit, dealers said.
The 14-day relative strength index reading stood around 25, from the previous reading of 29. A reading of 30 or lower means the market is oversold and one of 70 or above indicates a market is overbought. The market is now looking toward release of the weekly export sales report from the US Agriculture Department later in the week to see if there are any cancellations of orders by China, the world's top cotton consumer.
Volume on Wednesday reached almost 39,200 lots, two-thirds over the 30-day norm and on track for its highest daily trading volume since May 11, Thomson Reuters and ICE Futures US data showed. Open interest in the cotton market, an indicator of investor interest, amounted to 191,976 lots as of May 29, ICE data showed.
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