US cotton futures finished sharply lower, with the benchmark July contract ending at the downside limit, and despite the Federal Reserve's essentially unchanged policy, the market's supply glut pressured prices into Wednesday's close. Many players sold cotton along with other commodities in a measure to lower risk ahead of the US central bank's policy-setting meeting.
July cotton futures fell by the downside limit in early morning business. Once the Fed issued its communiqué that pledged to maintain an exceptionally low interest rate policy for an extended period. Some reassured buyers bought cotton at the lows following release of the Fed's news, but sellers were more persistent.
"July has a heartbeat, but just barely," said Ron Lawson, Managing Director of logicadvisors.com. Most-active July cotton on ICE Futures US, tumbled 7.0 cents to settle at their downside limit of $1.5339 per lb., a 4.36 percent decline, despite fleeting attempts to bounce off the low after the Fed released its policy statement. With May cotton undergoing deliveries, it slid 6.95 cents, or 3.82 percent, to finish at $1.74 per lb.
There were no delivery notices again on Wednesday, with a total of 13 being issued to date. New-crop December cotton closed 4.84 cents lower at $1.2460 cents a lb., a 3.74 percent drop. The Federal Reserve signalled it is in no rush to scale back its extensive support for the US economy and said a run-up in commodity prices that has dented growth should be fleeting.
Some participants read the Fed's decision to mean the US economy lacked enough vigour to consider anything except an extremely accommodative policy, which suggests that demand for cotton is unlike to pick up by much any time soon. The message came as a slew of supply from Brazil, Argentina and Australia hits the market at aggressive prices. In the US, Texas is largest producing state and has been troubled by drought, possibly affecting crop due in December.
So far, forecasters see no rain in the foreseeable future for Texas. If that changes, and rains do come, even more cotton would eventually be hitting the US market. "Every Memorial Day for the last 100 years they've had rain in Texas, but we'll see," said Lawson. Further signs that the market is facing too much supply in the short term should come with the US Department of Agriculture's weekly export sales data on Thursday.
Analysts, on average, look for weekly sales of about 135,000 bales, with a decline expected in current crop sales as the market faces a fifth straight week of order cancellations. An offsetting factor, could come with floods from the Mississippi River in about two weeks. "On May 10, the Mississippi River is predicted to top in Memphis at a level that is higher than during the 1937 floods from that covered a third of Arkansas," Lawson added.
The ICE issued a notice on Wednesday that 500 bales of cotton at an exchange licensed cotton warehouse in Memphis suffered water damage as a result of storms overnight. While not significant amid total US inventories, flooding remains an issue to keep an eye on, brokers said.