Cotton futures fell to the lowest level since late January on Thursday, on technically-driven selling, worries over a potential slowdown in top consumer China, and easing supply concerns in the United States, the world's top exporter. The most-active July cotton contract on ICE Futures US fell 1.64 cents, or 2 percent, to settle at 81.78 cents per pound.
Earlier, the contract dropped as low as 81.52 cents a lb after breaching key technical support and triggering sell stop orders, dealers said. The technically-prompted selling pushed cotton to extend losses seen as a decline in China's factory activity prompted concern over demand for cotton from the world's largest textile market. Supply concerns eased on rain forecasts in drought-plagued regions of Texas, the top growing state in the United States.
"We're seeing this bad economic data showing a shrinkage. The bull spread has lost tremendously in July," said Keith Brown, president of commodity firm Keith Brown and Co in Moultrie, Georgia. The December contract moved into a premium against July earlier this week. A backwardated market can be indicative of near-term supply tightness. The December cotton contract saw more limited losses on Thursday, causing its premium over July cotton to spike from 0.97 cent per lb to 1.86 cents a lb, the highest level in a month.
ICE December cotton, which represents the new crop, settled down 0.75 cent, or 0.9 percent, at 83.64 cents a lb. US government weakly export data was seen as mixed by dealers, with sales in the week ending May 16 above many expectations but shipments down 24 percent from the previous week. Exchange stocks remained above 500,000 bales on Wednesday, according to ICE data, at some of the highest levels since June 2010. A steady pace of exports to China has created a sense of solid global demand and tightening global stocks outside China, dealers have said.
While the world is forecast to hold record global inventories by the end of the crop year through July, 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. The front-month contract has closed lower during eight of the last ten sessions and is down from a one-year high of nearly 94 cents in mid-March. Still, cotton is up more than 8 percent this year, after posting two years of losses, when lower-priced, synthetic fibres eroded demand, and global inventories grew.