Cotton futures ended down on Wednesday and near a 1-1/2 year low on investment fund sales as weak global economies deflated fibre contracts, with brokers betting on further losses in the days ahead. The benchmark December cotton contract dove 2.63 cents or by 5.2 percent to conclude at 47.54 cents per lb, dealing from 50.87 to a new lifetime low of 47.40 cents.
It was the worst close for cotton on the spot daily charts since the middle of May 2007. March sank 2.71 cents to end at 51.88 cents. Volume traded in the December contract stood at 11,368 lots at 2:42 pm (1842 GMT). "It's recession city any way you look at it," said Mike Stevens, an analyst for brokers SFS Futures in Mandeville, Louisiana.
Falling equity and commodity markets undermined cotton and once the key December contract slipped below 50 cents, automatic sell-orders kicked in and sped the fall, dealers said. "The new code word of the day is 'demand destruction,'" said Stevens. Analysts said the worsening economic outlook meant demand for cotton would suffer even though cotton sowings are at a 25-year low.
"Do cotton fundamentals matter? No, not in the short run and very probably not for the next six months, or at least until February," said the weekly letter of marketing analyst O.A. Cleveland. "Until then. it will all be about the consumer and how they react to the current credit crisis, debt crisis, liquidity crisis or whatever name one elects to use.
The consumer has always been the key anyway," he concluded. Brokers Flanagan Trading Corp put support in the December contract at 46.65 cents, with resistance at 47.65 and 48.55 cents. Volume on Tuesday amounted to 12,160 lots, exchange data showed. Open interest fell 924 lots to 175,560 contracts as of October 14.