US cotton futures finished down the daily limit on Friday on follow-through profit taking as investors took cash off the table after the market's record breaking run this week, analysts said. Cotton futures had rallied almost 30 percent since the middle of January to trade at its highest level in almost 150 years, but then staged its biggest one-day fall on Thursday in volatile business, Thomson Reuters data showed. Year-to-date, cotton is up almost 20 percent.
The key March cotton contract on ICE Futures US dropped the 4.00 cents limit to end at $1.6786 per lb, with the session top at $1.7244. Despite the steep sell-off of the last two sessions, the market is up 1.9 percent on the week. Total volume hit some 31,000 lots, almost 60 percent above the 30-day norm, Thomson Reuters preliminary data showed.
"We inhaled a rally of 40 cents so we had to exhale (in a correction)," said Ron Lawson, cotton analyst for commodity firm logicadvisors.com in Sonoma, California. Some analysts believe the selling was also induced by news the exchange is tightening control of positions in the spot contract before delivery. Mike Stevens, an independent analyst in Louisiana, said the market also saw further losses from Thursday's key reversal where a new record high was achieved and then market closed nearly limit down.
The last time a key reversal happened in the cotton market was on November 10 and "technical weakness" from the reversal on Thursday lingered in the market during Friday's session, Stevens explained. Lawson does not believe the rally is done, pointing to the price of the Cotlook A index [www.cotlook.com], an industry publication which issues the average price of cash cotton purchases in the world.
The A Index was being quoted on Friday at $2.0155/lb. "The cash (price of cotton) is still running above (the) futures (market)," said Lawson, which for him means there is further upside in cotton futures. The market will now turn its attention to industry group the National Cotton Council of America which will release its annual plantings survey for cotton at its annual meeting in San Antonio, Texas on Saturday. The data is normally handed out late on Friday, but the NCC said it will instead be released on Saturday around 10:30 am EST (1530 GMT).
A Reuters survey at the Beltwide Cotton conference this month had forecast US 2011 cotton plantings from 12.48 million to 12.53 million acres (5.05 million-5.07 million hectares), a five-year high and an increase of around 15 percent from last year's cotton sowings of 11.04 million acres.