Cotton declined for the first time in eight sessions on Thursday, stemming its longest series of daily gains in over a month, on a price correction in the technically-overbought market. The most-active May cotton contract on ICE Futures US slid 0.74 cent, or 0.8 percent, to settle at 86.50 cents per lb, after increasing for seven straight sessions, the longest rally since January.
Fibre prices have risen nearly 14 percent since the start of the year, reaching the highest level since early May 2012 on Wednesday. The surge has left cotton in technically overbought territory, and ripe for a price correction, since the end of January. Prices corrected downward on Thursday even amid weekly US export data that was seen by many as favourable.
"Shipment levels were excellent, the highest for the year, and export sales weren't bad, but we've been running this market pretty good to the upside. You're seeing some money coming off the table," said Jack Scoville of the Price Futures Group in Chicago. The May contract has been in technically overbought territory, with a 14-day relative strength index above 80, since the end of January. "The speculators have been the big buyers, and they're not going to buy every day. It's a matter of pushing back a little on recent gains and getting out of being as overbought as we are," said Knight Capital's cotton specialist Sharon Johnson.
Speculators have helped drive the year-to-date price spike, raising their net long position in cotton futures and options to the highest level since September 2010 last month. Trading volumes were light, totalling 16,680 contracts and down more than 30 percent from a 30-day average of 24,231 contracts, preliminary Thomson Reuters data showed.
Johnson pointed to the US Department of Agriculture's monthly crop report, scheduled for Friday. "We've got a lot riding on these numbers. People are repositioning into options today, gearing up for whatever may happen tomorrow," Johnson said. Last month, cotton futures rose following the crop report. The increase came even as the USDA raised its forecasts for a record global surplus by the end of the 2012/13 marketing year, because much of that cotton is expected to become part of China's strategic stockpiles and is seen as unavailable to the global market. Cotton's recent rally has followed two straight years of losses, as lower-priced, manmade alternatives eroded the natural fibre's demand and global surpluses grew.