The prior-day reversal and overbought readings instilled caution among the bulls. Smaller 2018-19 cotton area, but higher yields forecast for India, the world’s largest cotton producer.
Cotton futures couldn’t maintain early gains and closed lower Tuesday, extending the prior-session’s reversal off new contract highs.
July closed down 61 points to 85.38 cents, near the low of its 176-point range from up 88 points at 86.87 cents to down 88 points at 85.11 cents and below the prior-day low. May didn’t trade on its last trading day and settled even with July at 85.38 cents.
December settled down 23 points to 80.10 cents, in the lower third of its 101-point range from 80.82 cents to 79.81 cents. It also finished below the low of Monday’s reversal down.
The big reversal on Monday was seen by some traders as indicating the market may have made a short-term high and overbought readings instilled caution among the bulls, analysts said.
Volume slowed to an estimated 31,500 lots from 40,712 lots the prior session when spreads accounted for 13,513 lots or 33%, EFS 1,000 lots and EFP 160 lots. Options volume dipped to 15,462 lots (7,166 calls and 8,296 puts) from 19,332 lots (9,411 calls and 9,921 puts).
On the international scene, cotton farmers in India, the world’s largest producer, are generally expected to plant fewer acres to the fiber crop this year, partly because of pink bollworm infestations last year.
The USDA’s Foreign Agricultural Service post in India in an annual cotton report released last month forecast the country’s 2018-19 harvested area at 11.9 million hectares (one hectare equals 2.471 acres), down 4% from its estimate for 2017-18 of 12.4 million.
In its May supply-demand report, the International Cotton Advisory Committee said India’s planted cotton area is expected to decrease to 11.9 million hectares, same as the harvest area forecast by the FAS post.
Production was forecast by the FAS at 28.7 million 480-pound bales, down from the post’s estimate of 28.93 million for 2017-18 but up 200,000 bales from USDA’s official 2017-18 projection last month.
“Yields should be higher than last year as state officials are expected to monitor seed to fiber crop development,” the post said, also noting that “farm-gate prices remain high and should encourage more cotton coming to market or going straight to mills.” The pace of arrivals remained ahead of the prior year, the report added.
India accounts for about a third of the global cotton area. Future growth in production is more likely to come from higher yields rather than area expansion, the post said. Researchers are working on production schemes with higher plant populations that could improve yields.
India has an estimated 5.8 million cotton farmers with an average farm size of 1.5 hectares. Small land holdings seem to limit the ability to adopt capital-intensive production technologies and infrastructure.
Certified stocks in deliverable position increased 339 bales to 73,541 bales. Open interest grew 3,961 bales to 285,626 bales, with July’s down 69 lots to 143,356 lots and December’s up 2,475 lots to 113,127 lots.