Cotton futures declined for the second straight day on mounting signs that demand will ease in China, the world’s biggest consumer.
China’s central bank raised lenders’ reserve requirements yesterday as October’s larger-than-forecast $27.1 billion trade surplus threatened to accelerate inflation. Yesterday, cotton surged to a record for the seventh straight session as output declined in China and the U.S., the biggest exporter.
The increase in China’s reserve ratio for banks “is bearish for the cotton market,” said Sharon Johnson, a senior analyst at First Capitol Group LLC. “Also, the market has gone up very quickly, so it definitely needs to take a breather.”
Cotton for March delivery declined 1.93 cents, or 1.4 percent, to settle at $1.3918 a pound at 2:44 p.m. on ICE Futures U.S. in New York.
Yesterday, the most-active contract tumbled by the exchange limit of 6 cents after reaching $1.5195, the highest level since trading started 140 years ago. The commodity has climbed 96 percent in the past year.
ICE increased margins on cotton trading yesterday after prices and volatility surged.
“This has also added to today’s fall,” Johnson said.
Cotton’s rally will end before next year’s harvest, and U.S. farmers should sell their 2011 supplies at any price above 90 cents, according to agricultural economists at Texas A&M University in College Station.
Production ‘Potential’
“We are not expecting December 2011 to be close to or above $1 a pound for very long, given the potential we have for increased production,” Carl Anderson, a cotton economist and Texas A&M professor emeritus, said today on a conference call.
Cotton futures for December 2011 delivery fell 3 percent to 94.01 cents in New York. The contract reached a record $1.0062 on Nov. 9.
In China, cotton trading was spurred by excessive speculation, Zhou Wangjun, the deputy director of pricing at the National Development and Reform Commission, said yesterday. Clothing prices rose 1 percent in October from September, partly because of the rise in raw materials, the statistics bureau said today.
Cotton futures for May delivery on the Zhengzhou Commodity Exchange fell 4 percent today, ending an eight-session rally.
“The cotton market is wary of comments by Chinese officials that they will limit the effect of speculation,” Luke Mathews, a commodity strategist at Commonwealth Bank of Australia, said in a report.
Production in China was forecast by the U.S. Department of Agriculture to trail domestic demand for the 12th straight year, pushing the nation’s stockpiles to the lowest level since 1995.
