Benchmark cotton futures on ICE Futures US fell to their lowest levels in 1-1/2 weeks on Monday in their sharpest selloff in over a year as a collapse in China's stock markets triggered sell-offs across global equities and commodities markets. This prompted investors in need of capital to finance margin calls in unsuccessful investments to take profits where they could, including by selling cotton futures, traders said.
"They're getting killed on everything else and selling what has profits," said Ron Lawson, a partner at commodity investment firm Logic Advisers in Sonoma, California. Cotton prices had risen sharply in the past two weeks on a bullish US government crop forecast, benefiting market speculators, who held a substantial net long position in cotton as of last Tuesday, according to the most recent data.
The turmoil in Chinese markets is also bearish for cotton, as China is the world's top consumer of the fiber. Traders said these expectations for weaker consumption weighed as well, though the session's price action was dominated by the impact of outside markets. "The whole global commodities complex is down," said Avery Putter. "It's just following the global meltdown."
December cotton on ICE Futures US settled down by 2.86 cents on Monday, a 4.3 percent loss, at 64.05 cents per pound, after falling as low as 63.93 cents a pound, its lowest level since August 12. That marked the sharpest fall for the second-month contract since May 2014. Total futures market volume rose by 28,753 to 44,458 lots. Data showed total open interest gained 129 to 196,660 contracts in the previous session. Certificated cotton stocks deliverable as of August 21 totalled 82,508 480-lb bales, down from 83,036 in the previous session.
The dollar index was down 1.41 percent. The Thomson Reuters CoreCommodity CRB Index, which tracks 19 commodities, was down 2.68 percent. Speculators raised their net long position in cotton to 41,986 contracts from 19,341 contracts in the latest week. The Relative Strength Index in the most-active contract fell to 44.623.