Cotton futures settled on Friday at its lowest level in nearly three years on all-around investor liquidation as weak economic data in the US and China combined with fears of malaise in Europe to deflate the market, with analysts fearing further weakness going into next week. "The deflationary climate continues to drive everything," said Mike Stevens, an independent cotton analyst in Mandeville, Louisiana.
The world's economic outlook darkened on Friday after news that US employment growth slowed sharply, Chinese factory orders barely grew and European manufacturing fell deeper into crisis. "That (Chinese number) alone could put pressure on commodities," said Stevens, adding the US jobs data shoved many financial markets into a tailspin. "There's nothing nice you could say about the jobs report." World stocks plunged as fears of a global slump sent investors scurrying for cover.
The now benchmark December cotton contract on ICE Futures US dropped 2.74 cents, or by 3.9 percent, to close at 67.61 cents per lb, dealing between 67.35 and 70.49 cents. It was the lowest close for the third position cotton contract since early October 2009, Thomson Reuters data showed.
For the week, the contract was down 4.63 percent. Spot July cotton fell 2.96 cents to finish at 68.59 cents per lb, moving from 71.85 to down the 3.00 cent daily limit at 68.55 cents. Based on the spot month, the market sank 17.99 percent in May in the biggest monthly percentage loss for cotton since tumbling 36.1 percent in July 2011, Thomson Reuters data showed. The 14-day relative strength index reading of the cotton market stood near 22, from the previous reading of 27. A reading of 30 or lower means the market is oversold and one of 70 or above indicates a market is overbought.
Stevens said it did not seem to matter that cotton is oversold since chart-based investment funds are still dumping cotton contracts. Open interest in the cotton market, an indicator of investor interest, amounted to 193,425 lots as of May 30, the loftiest since April 5, the ICE data showed. "At the very least, it shows that the rise in interest means investors are increasing their shorts in cotton," a dealer said.
Volume on Friday reached slightly over 39,000 lots, almost two-thirds over the 30-day norm, Thomson Reuters data showed. Traded volume on Thursday stood at 39,092 lots, slightly lower than the 46,054 lots traded Wednesday, which is the highest such level since April 18, ICE Futures US data indicated.