Cotton futures settled easier on Tuesday on investor profit-taking as the market retreated after charging to its highest level in over seven weeks although the market is seen moving higher in the weeks ahead, brokers said. "We did move too far, too fast, leaving the market vulnerable," said Mike Stevens, an analyst for brokers SFS Futures in Mandeville, Louisiana. "It needs to stop and rest."
The key December cotton contract fell 1.29 cents to conclude at 80.95 cents per lb, dealing from 80.53 to 84.04 cents. Spot July cotton dropped 1.81 cents to 72.81 cents, trading from 72.60 to 76.20 cents.
Volume traded in the December contract stood at 23,535 lots at 2:53 pm EDT (1853 GMT) while July volume was at 6,078 lots. Fiber contracts had popped higher on follow-through buying, but the onset of merchant-linked options-related sales capped the advance and forced some investors to liquidate their positions, dealers said.
At this time, analysts said market players will be closely watching weather conditions in Texas, the top growing state in the country and where up to half of all US cotton will be planted this season. Forecasters DTN Meteorlogix said Texas should get scattered showers through Saturday. The market is also watching how severe floods in the US Midwest would impact on grains prices, which would have a knock-on impact on cotton futures.
"The 81.50 to 83.75 (cents, basis December) congestion area from April will likely provide significant overhead resistance," said Stevens in a report. "A setback and consolidation may now be forthcoming and would be quite healthy for the (market) bulls."
Traders said they see resistance in the December contract at 81.50 cents, with support at 80 cents. Volume traded Monday hit 40,955 lots, exchange data showed. Open interest in the cotton market dropped 5,379 lots to 223,616 lots as of June 16.