Cotton futures fell for only the second time in 15 sessions on Monday as concerns over euro zone stability pressured global equities markets and sent commodities markets reeling. The most-active May cotton contract on ICE Futures US declined 1.67 cents, or 1.8 percent, to settle at 90.83 cents per lb, the spot contract's largest one-day loss since the end of January.
The entire 19-commodity Thomson Reuters-Jefferies CRB index fell, the euro sank to a three-month low and global stock markets declined as concerns re-emerged over euro zone stability after political leaders decided to partially fund a bailout of Cyprus by taxing bank deposits. Meanwhile, the dollar index gained against a basket of six other currencies.
The macroeconomic worries pushed cotton to a daily loss, the second in the last 15 sessions for the spot contract. On Friday, prices climbed to 93.93 cents a lb, the highest price since late March 2012, amid a recent rally driven by speculators' investments and a sense of tightening global supplies. "The initial knee-jerk reaction is to take money off the table," said Peter Egli, director of risk management for Plexus Cotton Ltd, a British-based medium-sized merchant, regarding Monday's losses and concerns over euro zone stability.
Open interest has been climbing in the cotton market, reaching 213,471 contracts on Friday, according to ICE data. That is near a high of 214,167 contracts reached last month, the most since February 2011, not long before cotton prices peaked at more than $2.2 per lb, their highest since the US Civil War.
The rise in open interest has come as speculators have flooded into the cotton market, helping to drive a price rally of more than 20 percent since the start of the year. Non-commercial dealers boosted their bullish bets on cotton futures and options to a five-year high in the week ended March 12. Physical demand and tightening supplies have underpinned the futures market, merchants, growers and brokers have said. The US Department of Agriculture earlier this month revised upward its projection for global consumption during the 2012/13 crop year through July, citing sales and shipment volumes in recent weeks.
The world is forecast to hold a record global surplus by the end of the crop year, but more than half of the world's forecasted surplus is expected to become part of China's stockpiles and is seen as unavailable to the global marketplace. Beijing began building up its strategic reserve in 2011, paying more than global prices to support growers. The world's largest consumer of fibre is expected to have enough cotton in its stocks to feed demand for more than a full year. Prior to the year-to-date rally, cotton registered two years of losses following the run-up in early 2011, as high prices prompted mills to seek lower-priced, man-made alternatives and global stockpiles grew.
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