New York cotton limit down

US cotton futures slid to their lowest levels in 2-1/2 months on Tuesday, closing at their downside limit with ample supplies for waning demand, and caution ahead of the US Federal Reserve's policy meeting. Analysts said many commodity investors were nervous and the sidelines ahead of Wednesday's Fed policy announcement.
US Federal Reserve officials will continue their two-day policy meeting on Wednesday. "The market is weak and July futures just came off more than the others. It's mostly economic issues as people are skittish about the growth outlook and chatter about raising interest rates," said Bill Raffety, senior analyst for futures brokerage Penson Futures in New York.
Despite deliveries being underway for May cotton on ICE Futures US, fell a steep 6.24 cents to end at $1.8184. There were no delivery notices on Tuesday, with a total of 13 being issued to date, all of which went to the world's largest cotton merchant, Allenberg on Monday. Most-active July futures slid 6.0 cents, the downside limit, to close at $1.6039 per lb., a 3.61 percent drop. New-crop December cotton lost 4.52 cents to settle at $1.2944 cents a lb., a 3.37 percent decline.
The Fed was unlikely to raise interest rates given an uncertain US economic outlook, though talk of inflation in commodity markets heightened nervousness among some players. For the first-time ever in the central bank's 97-year history, Chairman Ben Bernanke will hold a press conference that had players in many markets on edge and on the sidelines, though no big surprises were expected.
"Mr Bernanke will probably not be saying anything too dramatic. For a first go, he simply wants it to happen without any errors, glitches or sudden surprises," said Sterling Smith, an analyst for Country Hedging Inc in St. Paul, Minnesota. July cotton continued to get hit from new supply coming from Southern Hemisphere growers.
"Business is dead right now and you probably have a 9 million bale crop coming out of Brazil," said Raffety, adding that Argentina and Australia also have supplies hitting the global market. In Texas, however, excessive dry conditions have put the December crop in jeopardy.
"Texas is still a question mark. Texas grows about half the US crop and probably about half of that crop is dryland. If it stays dry, about 1 to 2 million bales are knocked off the States crop, but Brazil could make up for that," said Raffety. Mike Stevens, an independent cotton analyst in Mandeville, Louisiana added that July was lower from, "Technical weakness, extremely weak yarn prices with buyers backing off, aggressive offers out of Brazil, Australia or Argentina, and Chinese prices much lower over night."
Weather predictor Meteorlogix, DTN's commercial weather service, forecast mostly dry conditions in Texas, the largest US cotton producing state. It said, temperatures were expected to remain near or below normal in the North and near to above normal in the South, at least through the weekend. "Dryland cotton through South Texas is stressed, due to lack of moisture. Field preparation is active through West Texas where more rain is needed," DTN said.