US cotton futures closed lower on Thursday for the second day running due to investor sales and profit-taking, pressured by lower Chinese cotton prices as the trade mulled whether the four-month long rally is finally at an end, analysts said. Cotton prices had been rallying since July and hit levels this week that have not been since the US Civil War in the 19th century.
-- Chinese cotton prices limit down, weighs on New York Despite selling off in the last two sessions, the US cotton market on ICE Futures US is still the top performing commodity on the Reuters Jefferies Commodity Index this year, having risen over 80 percent year to date.
The benchmark March cotton contract on ICE Futures US fell 1.93 cents to end at $1.3918 per lb, dealing from $1.3666 to $1.428. The spot December cotton futures lost 1.44 cents to end at $1.4421. Late index fund rolling narrowed the difference between the two contracts and pushed December into negative territory.
"There's a real good chance a top may be at hand," Mike Stevens, an independent cotton analyst in Louisiana, said. He cautioned though that there may still be fireworks in the spot December contract as players scramble to get out before notice day for deliveries in less than two weeks.
"It certainly smells and feels like a top," said Sharon Johnson, cotton expert at First Capitol Group in Atlanta, Georgia. "But everybody feels cautious." She said investors are wary because the market had surged after correcting a few times during its four-month long rally so no one will jump the gun in declaring the advance dead.
The primary catalyst for the fall on Thursday in US cotton values were sharply weaker cotton prices in China during Asian trade. The Zhengzhou Commodity Exchange's May cotton contract was last traded Thursday at the session low of 31,345 yuan per tonne, down 1,650 yuan on the day.
Another major factor for the lower market was the increase in cotton margins to its highest level since 1996, which prompted investors who have seen the market rise nearly 32 cents this month to cash in their gains. "We've got a lot of money so this a good time to make profits," said Johnson.
The market took note of news that China's Central Bank ordered banks to set aside more money as required reserves, a tightening step that mops up some of the cash that has been flowing into commodities markets and posing a growing inflationary threat. Chinese cotton traders said cash prices are now running around the same level as futures prices. On Friday, the market will take a look at the US Agriculture Department weekly export sales report to gauge demand for US cotton despite the current high prices.