Cotton futures settled lower on Wednesday on investor sales and switch trade as macro weakness in Europe spilled into fibre contracts, although late short-covering pared losses, analysts said. The key December cotton contract on ICE Futures US fell 0.44 cent to conclude at 97.18 cents per lb, moving from 96.62 to 98.18 cents. Total volume traded Wednesday hit around 20,300 lots, nearly a quarter above the 30-day norm, preliminary Thomson Reuters data and ICE Futures US data showed.
"We are holding," said Sharon Johnson, senior cotton expert at commodity brokerage Penson Futures in Atlanta, Georgia. She said some of the bearish impact of the latest eurozone news was quickly digested by the market. Stocks and the euro tumbled Wednesday as Italian borrowing costs spiked, raising fears the country will be forced to seek a bailout that could overwhelm the eurozone's finances and push the region into recession.
That pushed cotton down to its lows for the day, but the market stabilised and gradually came back, dealers said. The monthly US Agriculture Department's supply/demand report did not yield any surprises for the cotton market. USDA cut US 2011/12 cotton production, world cotton production and world cotton consumption. "The report is very neutral," said Johnson.
On a technical level, dealers said the downside targets in cotton is at 95.78 cents, basis December. Analysts said followers of index funds also continued to roll positions out of the December contract before it goes into first notice day for deliveries later in the month. Open interest in cotton, usually taken as an indicator of investor exposure there, stood at 165,589 lots as of November 8, exchange data showed. Total volume traded Tuesday in the cotton market reached 36,055 lots, the highest level traded since June 10 and up from the prior tally of 31,532 lots, ICE futures US data said.