Cotton futures dropped the most in 1-1/2 weeks after a US government monthly supply-demand report reaffirmed bearish expectations. The benchmark December cotton contract on ICE Futures US dropped 1.03 cents, or 1.6 percent, to settle at 63.37 cents a lb.
The contract had eked out gains during the two previous two sessions. Tuesday's loss pressured prices back into technically oversold territory. The December contract's 14-day relative strength index dropped to 28.8 from 32.5 previously. The US Agriculture Department (USDA) pegged 2014/15 US cotton production at a four-year high of 17.5 million 480-lb bales, the high end of industry expectations. The bearish domestic outlook offset a boost in the agency's world demand projections and kept prices under pressure throughout the day's trade.
"We're pricing in the potential for a huge crop," said Jobe Moss, a broker with MCM Inc in Lubbock, Texas. "Prices of cotton have come down. We're getting more competitive with polyester again. You'll see cotton start to grab some demand, I'd imagine," Moss added. New York futures have been under pressure as they headed into the 2014/15 crop year that began on August 1 due to rising market expectations that US farmers will harvest a bumper crop at the same time demand in top consumer China is expected to drop sharply due to a government policy overhaul.
The benchmark contract hit a near five-year low of 62.02 cents a lb at the start of the month. Weather in the United States has been favourable to cotton crops across the country this growing season. Even so, merchants and farmers warn that the return of dry weather in Texas, the top-producing state, and unfavourable weather elsewhere could keep them from meeting expectations. Exchange inventories again dropped, the most recent ICE data showed. They fell to 95,718 bales on Monday from 99,890 previously. That was down from a near one-year peak above 462,000 bales at the start of July.