Cotton futures drifted to a softer close on Wednesday, hit by speculative sales though uncertain crop damage from Hurricane Katrina in the US Southeast should keep buyers in the market, dealers said.
"Until we get any real reports from the field on how much damage this hurricane has done, I think we should continue to trade up around this 50.00 cent level," one said.
The New York Board of Trade's December cotton contract settled down 0.54 cent to 49.74 cents a lb, near the bottom half of its 49.60-50.57 cent trading range.
March lost 0.43 cent to 51.57 cents and back months closed 0.20 to 0.40 cent weaker.
Cotton futures spiked to a three-week peak Tuesday as uncertainty about crop damage in Louisiana and Mississippi as well as reports of crop losses in Lubbock, Texas, following hail storms over the weekend caused speculators to buy the market.
One analyst noted that any losses in the South-eastern states may not be as severe as initially perceived because some of the cotton crop that was damaged was not open when the storm hit and could still be salvaged.
"These stalks are twisted up with the wind and the cotton was not fully open, so there is a damage there, but it's not just like dropping it all over the ground," he said.
He added that favourable rains in West Texas over the previous month may offset any damage seen in Mississippi or Louisiana.
"I think the crop in Texas should offset any losses. I think we still have a 21 million bale plus crop, which is ample to meet all expected needs."
Looking ahead, the market will be focused on Thursday's weekly export sales report from the US Department of Agriculture to see if the data will continue to be as strong as the previous two weeks.
Cotton brokers expect US cotton sales to range from 250,000 to 350,000 running bales (RBs, 500-lbs each), vs. 410,000 RBs in the last weeks USDA report.
They estimated US cotton shipments of previously booked orders to range from 200,000 to 300,000 RBs. Last week shipments hit 318,800 RBs.
"I think these exports are still riding strong because we had the price down below 48.00-49.00 cents on December, so we've had favourable prices. I think they're booking a lot of it, trying to get what little step 2 payment they can get," said Carl Anderson, a cotton industry economist with Texas A&M University.
In other news, talks between China and the United States over China's surging textile exports have failed to bridge deep differences between the two trade giants, a US industry official said on Wednesday.
Floor dealers see resistance in the December contract at 50.65 and then at 51.00 cents, while support was seen at 49.10 and 48.65 cents.
They said estimated final cotton futures volume reached 10,245 lots, vs. 16,145 lots on Tuesday. Open interest fell 733 lots to 104,379 lots as of August 30.