Cotton futures edged down on Wednesday to a three-week low, under pressure from spread-related dealings and forecasts of rains in Texas that could ease supply concerns in the top producing state in the United States, dealers said. The most-active July cotton contract on ICE Futures US fell 0.44 cent, or 0.5 percent, to settle at 83.42 cents per pound, down for a third straight session.
Prices touched 83.32 cents a lb, the front-month contract's lowest price since May 2. The December contract on ICE, which represents the new crop, closed up 0.24 cent, or 0.3 percent, at 84.39 cents a lb. The December/July spread widened to 0.97 cent, up from 0.29 cent the previous session. December moved into a premium against July on Tuesday for the first time in almost two weeks.
"We're seeing some increased spread trading that's putting some carry back into the market," said Peter Egli, director of risk management for Plexus Cotton Ltd, a British-based medium-sized merchant. Open interest has begun to move into the December contract, which represents the new crop, and out of the front-month position. With noncommercial dealers holding a large net long position in cotton futures and options, the move into the forward contract puts pressure on the spot contract.
A stronger greenback, with the dollar index gaining against a basket of currencies, added weight, making dollar-traded commodities more expensive to holders of other currencies. Forecasts of rain at end of the week in key growing areas of Texas eased concerns over supplies from the drought-ridden region of the world's top exporter. Cotton bulls have said that weather-related delays to plantings could strain this year's supplies, if they need to extend further into the new crop year beginning on August 1.
A US crop progress report earlier this week showed a pick-up in plantings during the week ending May 19 following weather-related delays. Certified stocks remained above 500,000 bales on Tuesday, according to ICE data, some of the highest levels since June 2010. Dealers eyed US government weekly export data due on Thursday.
Weekly sales to China have been seen as solid for late in the season, lending support to expectations of tightening global supplies outside of China. The world is forecast to hold record global inventories by the end of the crop year, though more than half of those are expected to become part of China's stocks and are considered unavailable to the global marketplace. Beijing began building its reserves in 2011, paying above global prices to support farmers.