NY cotton ends down on India export hopes

NEW YORK: Cotton futures finished lower on Wednesday for the second straight session, as news that India could allow limited exports of cotton already under contract deflated the market, analysts said.

Exactly a year after cotton hit a record high following a seven-month rally, investor selling helped push the benchmark May contract on ICE Futures US down 1.30 cents, or 1.4 percent, to 90.12 cents per lb. It dealt from 91.54 to 89.75 cents.

Cotton prices have more than halved since hitting $2.27 a lb last March 7, as demand shriveled and sowings increased world wide.

Wednesday's volume of around 21,000 lots was about 13 percent below its 30-day norm, Thomson Reuters preliminary data showed.

Mike Stevens, an independent cotton analyst in Louisiana, said the market is not considering the situation in India, for now, and trading the bearish supply/demand fundamentals in cotton futures.

"India is the big unknown," he said. "The market has a slow grind going down."

Government sources in India, the world's No. 2 producer and the second biggest exporter behind the United States, said New Delhi may allow some shipments to go ahead as up to 2.5 million bales of cotton have been registered for export.

Traders said there is widespread uncertainty over how government ministers in India will decide on the issue when they meet on Friday.

The cotton market was thrown into confusion after India's farm minister said Tuesday he would challenge an export ban announced a day earlier by another government agency.

The ban rallied global cotton markets by raising fears that mills in China, the world's largest consumer, would turn to the United States at a time when its own supplies of cotton are almost sold out.

Investors were wrongfooted by the move. Data from the US Commodity Futures Trading Commission showed that speculators had switched to a net short position in cotton for the first time in a year.

For now, cotton traders said they were looking toward the release of a pair of reports from the US Agriculture Department over the next two days.

On Thursday, the USDA will hand out its weekly export sales data which will be used to gauge world cotton demand.

USDA will release its monthly supply/demand report on Friday. Both reports are due out at 8:30 a.m. EST (1330 GMT).

Copyright Reuters, 2012