US cotton ended down about half percent after a relatively quiet session on Friday that capped a volatile week for the fibre. Benchmark March cotton contract on ICE Futures US closed down 0.62 cent, or 0.4 percent, at $1.4060 per lb. It moved in a three-cent band during the session, touching a low of $1.3961 and high of $1.4250.
"There is little fresh news to stimulate traders to try and move out of the trading range," Mike Stevens, an independent cotton analyst in Mandeville, Louisiana, said. Cotton had swung wildly earlier in the week, trading in a band of more than five cents in three sessions.
Thursday's session was particularly volatile, with the March contract nearly rising by the four-cent trading limit only to fall as much later. For the week, March cotton fell 3 percent, its sharpest loss since late November. Analysts said prices rallied on speculative buying linked to talk of limited supplies coming into the New Year. They later dived on selling related to a rebalancing of cotton holdings by commodity indexes.
Index funds will be paring risk from cotton and other overly-weighted agriculture markets and adding exposure to natural gas and crude oil under the rebalancing, which runs between this week and next. Investment bank J.P. Morgan Chase has estimated that nearly 14,000 cotton contracts could be offloaded under the exercise, putting immediate pressure on cotton despite its strong fundamentals over the longer term.
Some traders think the liquidation pressure over the next fortnight could take ICE's benchmark March cotton to below the key $1.30 mark. But some market bulls are eyeing record highs above $1.60 per lb, saying this could even happen in the near term if supply fears worsen from floods in Australia and dry conditions in the US cotton belt of Texas.
March cotton peaked at $1.5912 on December 21, capping a streak of highs last seen during the 1861-1865 US Civil War - a time when the President was Abraham Lincoln. Many in the US cotton industry who attended an annual conference in Atlanta that ended on Friday appeared cautiously optimistic that high prices will persist in 2011.
According to a report by the US Department of Agriculture, circulated at the conference on Friday, the world cotton trade needs beginning stocks of at least 42.5 million (480-lb) bales of cotton at the start of a new marketing year to avoid market disruption.
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