US cotton futures finished limit down for the second straight session Tuesday as fears over Japan's disasters and nuclear crisis on the global economy took their toll on fibre, analysts said. It was the market's fifth fall in six sessions.
"Everything is in concert with Japan," said Mike Stevens, an independent cotton analyst in Mandeville, Louisiana. "You've got wholesale retrenchment in every asset class today." The key May cotton contract on ICE Futures US dropped its 7-cent limit to finish at $1.9094 per lb, with the session top at $1.9957.
Last week, the market lost 3.7 percent, the first weekly loss for cotton futures in 9 weeks. Volume traded stood at 18,000 lots, over 50 percent above the 30-day norm, Thomson Reuters preliminary data showed. Japan, the world's third largest economy, scrambled to head off a meltdown at a stricken nuclear plant, and Stevens said the cost of clean-up and recovery in the country's quake and tsunami-hit areas will hit global economies.
"This is going to be a real strain on the world's economy," Stevens said. "You don't know what the repercussions are going to be, but they're not going to be good." Analysts said the damage to an economy as large as Japan's will hurt cotton demand world-wide. Stevens raised the prospect that cotton's recent bull run could be fundamentally altered by the triple whammy of disasters ravaging the Japanese economy. "All markets are seeing risk reduction and this is being driven by fears of the unknown as the Japanese nuclear plant situation seems to go from bad to worse," added John Flanagan, president of brokers Flanagan Trading Corp in North Carolina.
The next bit of information which will provide direction for cotton futures would be the USDA's potential plantings data on March 31. That is the first government survey of likely plantings for major row crops like cotton, corn, soybeans and wheat in 2011. Despite the rally in cotton, the fibre has to compete for acreage against similarly high-priced grains this year.
Estimated volume traded Monday stood at about 16,000 lots, about 50 percent below the 30-day norm, Thomson Reuters preliminary data showed. Open interest in the market, an indicator of investment exposure in cotton, stood at 172,588 lots as of March 14, compared with 174,908 lots in the previous session, data from ICE Futures US showed.