NEW YORK: US cotton futures settled lower on Monday as late producer and technical selling hobbled an earlier rally to fresh three-week highs, with nervous investors sitting on the sidelines ahead of the US government's monthly crop report due Tuesday.
Prices had rallied to fresh three-week highs, extending the previous three sessions of gains, driven by a rise in the euro. The gains evaporated in the final hour of trading on tentative selling by producers ahead of the latest US Department of Agriculture crop forecast.
The most-active March contract on ICE Futures US settled down 0.39 cent, or 0.53 percent, at 73.4 cents per lb, just shy of its intraday low of 73.27 cents hit in the final hour of trading. A stronger euro and buying across the broader commodities market had propelled prices to 74.33 cents earlier in the session, its highest level since Nov. 16.
Volumes were below average, with just under 10,000 lots of March traded on the day.
While analysts do not expect major changes to last month's report, the data will likely reinforce fears about slack supply-demand fundamentals. Last month the US government predicted global inventory by next July will exceed 80 million bales, which would be the largest supply since records began in 1966.
"Anticipated US cotton fundamentals are likely to loosen incrementally in December, adding more fundamental downside weight to futures prices in the near term," said INTL FCStone analysts said.
They predicted an increase in US ending stocks of 200,000 bales, taking the total to 6 million bales due to lower exports.
Sales abroad may slacken without the threat of a ban on exports from India and if the Chinese government starts to auction off some of its massive hoard of fibers, the analysts said.
"While season-to-date exports are well ahead of this point last year, we remain concerned that outstanding sales are roughly 40 percent lower than by this point last year," they said.
Earlier this year, foreign mills raced to secure fibers after India, the world's second-biggest producer, imposed a temporary ban on exports. The authorities wanted to protect domestic supplies amid fears of a shortages. The government has said recently it does not expect to have to repeat the measure in 2013 due to plentiful crops.
At the same time, rumors have circulated that Beijing may sell a portion of the estimated 30 million-plus bales of cotton held in its strategic stockpile. That would further stiffen competition for business.
USDA's domestic production forecast will likely be unchanged at 17.4 million bales and mill consumption level at 3.4 million bales from last month's report, INTL FCStone said.
Further ahead though market conditions may brighten and prices recover if farmers cut plantings in the spring in favor of grains, which have soared in value this year due the US drought.
"We caution that relatively cheap cotton and higher prices for key competitor crops portend a large decline in northern hemisphere cotton plantings in the spring," it said.
The grains market was rocked on Monday by similar concerns. Corn hit a three-week low amid expectations that export business is falling short of forecasts.
Center>Copyright Reuters, 2012