Cotton futures closed lower Tuesday on liquidation by investors spooked by a re-emerging euro zone debt crisis and news from US brokerage MF Global. The key December cotton contract on ICE Futures US dropped 2.75 cents or almost 2.7 percent to finish at 99.54 cents per lb, moving from 98.77 cents to $1.0275.
Total volume traded Tuesday rose over 31,700 lots, on track for the highest since June 10 and more than double the 30-day norm, preliminary Thomson Reuters data and ICE Futures US data showed. On Friday, the contract ended at $1.0437 in the highest settlement for spot cotton in six weeks mainly due to optimism the European debt crisis had been resolved. Greece's surprise call for a referendum on the latest eurozone bailout deal rekindled fears the country could face an imminent default and roiled financial markets.
Financial markets were also hit by news that bankrupt brokerage MF Global Holding Ltd failed to protect customer accounts by keeping them separate from its own funds, sending shockwaves through commodities. "You're seeing a lot of pressure from MF Global liquidation. You're getting selling from the macro economic situation in Europe," said Mike Stevens, an independent cotton analyst from Mandeville, Louisiana.
"Until further notice, everything's going to be very defensive," he said of commodity markets. Technically, dealers said the December contract may soon take aim at the recent low of 96 cents hit last week and possibly go toward 93 or even 90 cents further afield.
Open interest in cotton, usually taken as an indicator of investor exposure in cotton, stood at 163,505 lots as of October 31, its highest level since April 20, exchange data showed. Total volume traded Monday in the cotton market reached 25,331 lots, down from the previous tally of 26,389 lots, ICE futures US data reported.
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