Cotton futures fell for a fifth straight session to nine-month lows on Thursday as funds and speculative investors sold their bullish bets after weak US export sales reinforced fears about waning demand. The relentless selling left fibre the worst performing commodity out of 19 tracked by the Thomson Reuters/CoreCommodity CRB index and wiped out most of the market's gains made so far this year.
"It's mostly fund selling," said Jobe Moss, a broker with MCM Inc in Lubbock, Texas. "When we broke through 81.72 cents, that just ignited full scale liquidation mode." ICE's most-active December cotton contract settled down 1.48 cents, or 1.8 percent, at 79.21 cents a lb, after falling to as low as 78.76, its weakest since January 28. That put the market on track for its worst week since mid-August.
Because the most-active contract closed at or below 80 cents, the daily trading limit for all cotton No 2 contracts will move to 3 cents per lb above or below the prior day's settlement, effective with the start of trading for Friday, according to an ICE statement. That is down from the previous 4-cent limit. The fund selling will raise concerns among merchants and growers that an exodus of speculative cash will remove a key market support that has boosted prices this year even as the global market struggles with a record surplus.
Funds piled in at the start of the year, betting on higher prices due to China's appetite for fibre and a small US crop, and propelled prices to as high as 94.20 cents in March. Prices have since fallen 14.5 percent. Traders were disappointed by weekly export sales data that showed the world's biggest cotton exporter sold only 44,000 running bales for the 2013/14 crop in the week to October 3. It was the first export data in three weeks due to the government shutdown.
The total, down by a third from the previous week and the lowest since mid-August, also included a cancellation of some 25,300 bales of previously booked orders destined for Turkey and just 16,900 bales sold to China, the world's No 1 textile market. "When this stuff isn't moving, we've got to cut the price," said Moss.
Weak sales added to worries about oversupplies after the US Department of Agriculture's crop progress report on Monday showed almost half the US crop is in good or excellent condition. That is up from 42 percent last year. Certified cotton stocks rose by another 7,621 bales to 102,093 bales. Even so, the latest pressure means the December contract is technically oversold, with a 25 reading on the Relative Strength Index, leaving prices vulnerable to a short-covering rally.
There was little evidence of buying on Thursday though, even after prices pierced the 80-cent mark, a level that often triggers some mill interest. The US dollar remained under pressure while stocks edged higher as expectations for an accommodative monetary policy offset mixed earnings and economic data. The market awaited the first publication of the weekly Commitment of Traders report due on Friday, the first since the start of the US government shutdown, for insight into speculators' strategy. The last data, released on September 27, showed speculators' net long positions in cotton futures and options in the week to September 24 were near the lowest levels since January.