New York cotton ends limit down

US cotton futures ended down the 5-cent daily limit on Wednesday on profit-taking and investor liquidation one day after the market hit a record top, and analysts believe cotton may see follow-through pressure before the long Christmas break. The market will be closed on Friday and reopen on Monday at 7:30 am EST (1230 GMT). The key March cotton contract on ICE Futures US fell the 5-cent limit to finish at $1.5412 per lb.
After finishing limit up the last two sessions, the market headed the other way on Wednesday. Cotton's performance called to mind its performance on November 10, when it traded the daily limit up before finishing almost limit down. Cotton is still the best performing commodity in the Reuters-Jefferies commodity index, up almost 85 percent year to date.
Sharon Johnson, senior cotton analyst at commodities brokerage Penson Futures, said fiber contracts came off because cotton was "technically overbought," so investors opted to liquidate their positions. She said the market also took its cue from weaker Chinese cotton prices.
The May cotton contract on the Zhengzhou Commodity Exchange last traded 1,135 yuan lower on the day at 27,640 yuan per tonne. "A widespread, long-lasting tumble in prices is unlikely, given the high inflation in China," said a Shanghai-based trader. "But we may see some correction as prices have rallied quite a bit."
The volume of business in the US cotton market, though, was well below the norm. Total volume traded was around 9,400 lots, about three-quarters below the 30-day average of 37,400 lots, Thomson Reuters preliminary data showed. Some analysts believe the market's outlook is still bullish.
"The cotton market has shown unbelievable strength," said Luke Matthews, a commodity strategist at the Commonwealth Bank of Australia. "It is a continuation of those themes - that is extraordinary tight cotton supplies - which are going to persist in the near term."
India, the world's second-biggest producer and exporter of cotton, will allow exports of 2.5 million bales in 2010/11, Trade Minister Anand Sharma said on Tuesday. That is short of an earlier announcement that India would export 5.5 million bales. Options trading in the cotton market was halted for the third day running because the spot month in the cotton futures market traded at its daily limit, ICE Futures US said. The market will also be waiting for the release Thursday of the US Agriculture Department's weekly export sales report.