Cotton futures fell to their lowest levels since October Friday on spillover
weakness from equities and other commodities and further selling triggered by
both a break below key technical support plus options-related activity.
Most-active March cotton settled down 237 points, or 3.44%, at 66.62 cents
per pound on ICE Futures U.S. The contract traded as low as 66.55 cents, its
weakest level since Oct. 13. May cotton finished 227 points, or 3.22%, lower at
68.23 cents.
The recent risk aversion continued in markets generally, with the Dow Jones
Industrial Average around 140 points lower and Nymex crude oil more than $2
weaker not long ahead of the cotton close.
"That is enough, along with strength in the U.S. dollar, to bring additional
pressure to a lot of commodities," said Sharon Johnson, senior cotton analyst
at First Capitol Group.
Risk aversion and safe-haven buying of the dollar are in large part the
result of ongoing concerns about euro-zone debt, commodity analysts reported
throughout the day. A stronger greenback pressures dollar-denominated
commodities by making them more expensive in other currencies. Just ahead of
the cotton close, the ICE Futures U.S. March dollar index was up 0.645 point
and earlier hit a peak of 80.820 that was its most muscular level since July.
Speculators have been selling to exit commodities positions in which they
previously bought, and this has spilled over into cotton, analysts said.
The decline accelerated when the market took out a key technical area that
triggered additional selling. This occurred around the previous lows for the
week, Johnson said.
The March futures previously stopped their descent three days this week
between 68.18 and 68.21 cents. As this support area failed late in the morning,
the decline accelerated to around 66.55 cents within minutes.
This sharp slide triggered still more weakness due to the final day of
trading in March options, Johnson explained. As the market fell more than 2
cents from the high to low, many calls were suddenly out of the money and many
puts in the money.
"Suddenly folks are having to scramble and unwind those positions and protect
themselves," she said. "So it added to the downside on the market because of
the additional selling that occurred as a result."
ICE daily cotton stocks increased by 8,981 500-pound bales Thursday to total
511,211 bales, with 41,156 bales awaiting review, according to exchange data.
ICE cotton open interest--the number of active positions left at the end of
the session--decreased by 2,313 positions Thursday to total 168,874, according
to exchange data.
Electronic volume as of 2:30 p.m. EST (1930 GMT) Friday was estimated at
47,525 lots. In combined floor and electronic options trading, there were
approximately 9,216 calls and 837 puts, according to exchange data.
Close Change Range
March 66.62c dn 237 pts 66.55c-69.38c
May 68.23c dn 227 pts 67.80c-70.82c