Friday, February 25, 2011

US cotton futures finished on Wednesday with hefty losses

US cotton futures finished on Wednesday with hefty losses, but nowhere near the 7-cent downside limit reached in the prior two sessions as speculative spread selling seemed to have lost steam, brokers said. Risk aversion that pressured cotton a day earlier also eased and speculators refocused on concerns over tight supplies, which had helped run fibre to records above $2 a lb.

"Supply and demand seems to be trumping the fear factor," said Keith Brown of brokerage Keith Brown and Co in Moultrie, Georgia. March cotton finished down 1.38 cents, or 0.73 percent, at $1.8656 per lb, but fell as low as $1.8090. March's open interest has ebbed to 1,100 contracts, with May futures carrying open interest of 18,096 lots. New benchmark May cotton on ICE Futures US settled with losses of 3.7 cents, or 1.97 percent, at $1.8423. The session low was $1.8093 a lb.

Some prices tumbled by their 7-cent downside limit in early business, but eventually buyers came back in at the lows, cutting losses to levels that sparked some two-way flow. Brown said of the smaller declines: "Everyone's exhausted." He noted that contracts dated from December, when the new crop is harvested, onward ended in positive territory. An unraveling of nearby spreads left those contracts lower, but for the new crop underlying the December contract, Brown said: "There hasn't been a seed put in the ground, so it's kind of hard to kill it (the contract)." Last week, nearby contracts hit records well above $2 a lb in a short-cover squeeze heading into the March delivery period.

Once the last short positions were covered on Thursday night, any speculators left at the top of the market ran for the exits at the same time, driving prices back down by the 7-cent limit for two days in a row. Despite that two-day slide, prices have been on an uptrend since last August, spurred by tight global supplies. No deliveries have been posted against the March contract despite the rush to buy front-month futures, indicating few supplies on hand, brokers said. Analysts and brokers said they expected shortages to continue amid strong global demand and short supplies, which eventually may push prices back to record levels.


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