Cotton futures crumbled from speculative fund liquidation and option-related sales to close Tuesday at a five-month low and the market's horrid performance may lead to more losses this week, brokers said.
The New York Board of Trade's open-outcry July cotton contract sank 0.79 cent to finish at 50.72 cents per lb, dealing from 51.70 to a new lifetime low of 50.22 cents.
Spot May fell 0.42 to 48.68 cents, moving from 49.55 to a contract low of 48.30 cents. Based on the spot daily charts, it was the lowest close for cotton since late November 2006. Back months lost from 0.75 to 1.05 cents.
IntercontinentalExchange's NYBOT electronic platform for cotton showed the July contract down 0.86 cent at 50.65 cents at 2:28 pm EDT (1828 GMT), moving from 51.71 to a new contract low of 50.20 cents. Mike Stevens, an analyst for brokers SFS Futures in Mandeville, Louisiana, said a combination of options and speculative pressure dropped fibre contracts into lifetime lows and sparked "an avalanche of selling."
"We got a lot of wounded bulls out there," he said, adding cotton futures may find it tough to stage a recovery unless the old crop July and new crop December cotton contracts climb over its previous contract lows of 51.07 and 55.92 cents, respectively.
Fundamentally, market players digested news that US cotton plantings in 2007 were lagging a bit. The US Agriculture Department said 11 percent of US cotton has been planted, from 22 percent by this time last year and the five-year average of 16 percent.
Cotton contracts edged up at the start to hit its high for the day, but the pace of options-linked and then speculative sales picked up to put enormous pressure on the market, traders said. "Once that kicked in, the trade backed away and it just crashed. We could see a small bounce, but the trend is down," a dealer said.
Brokers Flanagan Trading Corp sees resistance in the July contract at 51.10 and 52 cents, with support at 50.60 and 50.05 cents. Floor dealers said estimated final volume stood at 14,000 lots, from the prior total volume of 26,879 contracts. NYBOT said electronic trading volume Monday amounted to 8,910 lots. Open interest was at 220,682 lots as of April 23, down 757 lots from the previous session.