Cotton futures slip on producer hedging, weaker commodities

Cotton futures slipped on Thursday in light trading volume, under pressure from producer selling, weakening commodity markets and US weekly export data seen as mixed, dealers said. The most-active July cotton contract on ICE Futures US fell 0.42 cent, or 0.5 percent, to settle at 86.03 cents per pound, after mixed trading throughout the session.
With US plantings picking up, trade hedging added selling pressure and outweighed limited mill buying, merchants said. "Mill business was more active today than in the last week, But we saw some hedging pressure" as producers began to forward sell the new crop in the United States and other countries, said Peter Egli, director of risk management for Plexus Cotton Ltd, a medium-sized British-based merchant. Planting picked up as weather improved in the Mississippi Delta and into the Southeast United States and eased concerns over delays in the regions, dealers said.
Cotton felt pressure from other falling commodities markets as the Thomson Reuters-Jefferies CRB, a benchmark for global commodities, edged down on losses in agricultural markets and in gold, and US financial markets were little changed. Open interest reached 184,470 lots on Wednesday, up by 1,198 lots from the previous session, as prices fell, interpreted as new short positions entering the market.
US government export data on Thursday showed a sharp decrease in weekly export sales from previous weeks in the week ending May 9. Cotton failed to register steep losses on the data, though, with some traders pointing to an increase in sales to China, as the country continues to build its state reserves despite a decrease in imports seen in April. Beijing began building its stocks in 2011, paying above global prices to support farmers. The world's largest textile market is forecast to hold about two-thirds of record global inventories in 2013/14.
The cotton bulls note that despite a huge global surplus, inventories outside of China have been tightening. Prior to a price rally during the first quarter of about 18 percent, cotton registered two years of losses as lower-priced synthetic fibres eroded demand and global stocks grew. Trading volume was light on Thursday, at fewer than 11,000 contracts compared with a 30-day average of more than 24,000, preliminary Thomson Reuters data showed.