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Cotton futures closed sharply lower on Wednesday on investor liquidation as the market fell back from the one-month high it hit in the previous session as the short play in the July contract appears to have come to an end, brokers said. The spot July cotton contract on the ICE Futures US exchange dropped 4.81 cents, or 5.4 percent, to end at 83.17 cents per lb, moving from 82.98 to 89.48 cents.
On Tuesday, the contract rose the 5.00 cent daily limit to settle at 87.98 cents in the highest close for the spot contract since the middle of May, Thomson Reuters data showed. Key December fell 1.72 cents, or 2.3 percent, to finish at 72.71 cents per lb, dealing from 71.06 to 74.50 cents.
Volume traded on Wednesday stood near 28,100 lots, some 15 percent above the 30-day norm, Thomson Reuters data showed. "I think the short play (in July) is over," said Jobe Moss, an analyst for merchants and brokers MCM Inc in Lubbock, Texas. Speculators finally managed to liquidate a substantial portion of their positions in July, coming as it did a few days before the contract goes into delivery on Monday, dealers said.
Investors are getting out because it would be very difficult for them to get their hands on cotton they can deliver against the board because most US fibre has already been harvested and sold, they said. Under exchange rules, only US cotton is deliverable at the exchange. The market will now be looking toward the weekly export sales report from the US Department of Agriculture to see if further sales to China are posted in the government data.
Tuesday's estimated volume was at 55,893 lots, the highest level since June 11, ICE Futures US data showed. Open interest in the cotton market, an indicator of investor exposure, fell for the fourth session running and amounted to 180,227 lots as of June 19, the lowest since March 9, the exchange data said.

Copyright Reuters, 2012

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