Cotton futures closed easier Tuesday after charging to a fresh two-year top as the market was hit by some profit-taking and investors wondered if a correction was imminent after the rally, brokers said. ICE Futures US benchmark December cotton contract eased 0.23 cent to finish at 86.20 cents per lb.
-- December contract touches highest level since March 2008
The contract traded from 86.13 to 87.71 cents, the highest level for the second position contract since March 2008. Among all US commodities, cotton posted the best performance for the month by increasing 9.45 percent. It is the biggest monthly gain for cotton since February. "It's extraordinarily frothy in cotton," said Sharon Johnson, cotton expert for First Capitol Group in Atlanta, Georgia.
Some analysts believe if the market falls below the 10-day moving average near 85 cents, which forms near-term support, the speculative funds that have sparked the rally may decide to dump cotton for the meantime and cash out. "It's getting a little top-heavy in this market and you have (the US cotton) harvest around the corner. This rally could be close to a major top," one said.
But others believe the rally could still push higher given robust demand and the fact that open interest in cotton remains below the levels seen in March 2008 during the last spike in cotton futures. Open interest in cotton in March 2008 exceeded 300,000 lots. (Graphic on cotton prices and open interest: http://link.reuters.com/xaf58n)
Total cotton contracts traded stood at 12,648 lots at 2:36 pm EDT (1836 GMT), below the 30-day average of 15,230 lots, according to preliminary Thomson Reuters data. Brokers Flanagan Trading Corp sees resistance for December futures at 86.40 and 87.50 cents, with support at 85.55 and 84.55 cents. Total volume traded Monday reached 7,956 lots from the previous 16,030 lots, according to ICE Futures US data. Total open interest in cotton stood at 217,526 lots as of August 30, from 216,862 lots previously, the exchange said.