Cotton futures finished Wednesday at a 16-month low as weak outside markets coupled with poor fundamentals took their toll, and further losses could occur in coming days, analysts said. Global stock markets and the euro sank as worries escalated over record-high borrowing costs for Italy and a decision by the US Federal Reserve to do nothing new to support growth.
The benchmark March cotton futures fell 2.19 cents or by 2.5 percent to finish at 85.12 cents per lb, trading from 84.35 to 87.42 cents. On the spot continuation charts, it was the lowest level traded since the middle of August 2010. Cotton prices began rallying in August 2010 due to tight supplies and robust demand, eventually hoisting cotton futures to their highest since the US Civil War in the 19th century. Prices peaked at $2.27 in March before starting a sharp decline.
Volume traded on Wednesday reached almost 13,100 lots, nearly 40 percent under the 30-day norm, Thomson Reuters preliminary data showed. "Cotton continues to slowly crumble," said Mike Stevens, an independent cotton analyst in Mandeville, Louisiana, adding losses in virtually every commodity made it tough for cotton to stem the fall.
He said investors were taking aim at levels around 82 cents and then 80 cents in the March contract. Cotton's fundamental outlook is not being helped by the latest monthly supply/demand report from the US Agriculture Department, which forecast world 2011/12 cotton consumption at 111.34 million (480-lb) bales and production far ahead at 123.42 million bales.
Open interest in cotton, usually taken as an indicator of investor exposure, was at 149,446 lots as of Tuesday, up more than 8,000 lots from 141,120 on Monday, exchange data showed. Traders said that indicated significant short positions taken by investors in cotton. "They are betting at lower prices and it is hard to argue against that," a dealer said. Volume traded on Tuesday hit 11,841 lots, from the prior tally of 10,793 lots, ICE Futures US data showed.