Cotton futures slid with other commodity markets on Wednesday, falling from 2.20 to more than 3.50 percent to 10-day lows after the release of Federal Reserve minutes that indicated it was unlikely there would be more economic stimulus measures.Minutes from the Fed's March policy meeting, released late Tuesday, showed US policymakers were less keen on adding monetary stimulus as the American economy improves, but came out too late for US cotton market investors to react.
On Wednesday, funds were thought to have unwound some of the long cotton positions taken out last week, which pushed prices into overbought territory on the price charts. The benchmark May contract on ICE Futures US slid 3.32 cents, or 3.58 percent, to end at 89.32 cents per lb, in a range extending from 88.92 to 92.64 per lb. The contract volume came to a hefty 20,121 lots.
New-crop December dropped 2.52 percent to close at 88.60 cents, a 2.28 cent decline. Volume was 4,554 lots. Also on Wednesday, private-sector jobs data, released by payrolls processor ADP, showed US employers added 209,000 jobs in March, and January and February were both upwardly revised, suggesting the US labour market was continuing to strengthen, reinforcing the view that further stimulus measures would not be forthcoming.
While cotton fell along with most other assets perceived to carry more risk, analysts said exportable commodities like cotton, soybeans and corn may have suffered more than some of the others. "But technically, we were very overbought in cotton and due for a pull back. This news added fuel to the fire," said Sharon Johnson, senior cotton analyst at Penson Futures in Atlanta.
She pointed out this weeks spec/hedge report showed speculators covered 7,000 short positions last week and nearly doubled their net long positions. "Today, they reversed themselves and took out more shorts. I think that's where a lot of the selling came from," she said. At current levels, Johnson said she thought mills would return to market after being priced out at higher levels.
"This cleans out the market and opens it back up for more actual business to take place," Johnson added The next USDA acreage report is due to be released on June 30, and this will set the stage for the upcoming 2012/13 marketing year (August/July). Open interest in the cotton market, an indicator of investor exposure in the market, fell by 374 to 191,444 lots as of April 3, exchange data showed. On March 30, it rose for the first time in five sessions to 192,184 lots, the highest level since February 9.