NEW YORK, Feb 14 (Reuters) - U.S. cotton futures fell
sharply close on Monday, with the key March contract settling
down more than 2 percent, after options expirations left many
speculators holding long futures positions, prompting them to
grab profits in a selling spree.

Over the weekend, cotton call options that expired in the
money on Friday were assigned and exercised, resulting in a
slew of new long futures positions among speculative interests
at Monday's start, brokers said.

'This morning they showed up with new positions in their
hands ready to take their profits. If you're long calls and the
market closes at the highest it's ever been, it's impossible
not to have profits,' said Ron Lawson, Managing Director, of
logicadvisors.com.

Benchmark March cotton contracts on ICE Futures U.S.
slid 2.06 percent to end down 3.92 cents at $1.8605 per lb,
after falling as low as $1.8510 during the session.

On Friday, spot fiber futures shot up to an all-time high
of $1.9455 per lb, a level exceeding cotton's previous record.
Until Friday, prices had never surpassed levels seen during
the U.S. Civil War, estimated by historians around $1.89. The
Civil War lasted from 1861 to 1865.

Cotton climbed 13.17 percent last week. Since the beginning
of the year, cotton has advanced over 35 percent in the second
wave of a rally that began in August 2010. (Graph:

http://link.reuters.com/vuf97r )

While speculators unwound some of their long positions on
Monday, analysts said, tight supply/demand fundamentals remain
in tact for the cotton market. Many observers still expect
prices to head for $2 per lb and even $3 a lb, eventually.

'We're still very bullish long-term. With the dynamics of
the supply/demand fundamentals, nothing has changed. It's just
that for every inhale you need an exhale. We had quite an
inhale, so we're due for an exhale,' said Lawson.

Analysts said scarce supplies were behind the rally, in the
face of the strong demand. Most of the Northern Hemisphere
cotton crop has already been harvested and the pace of cotton
export sales by the United States seen in USDA's weekly export
sales data continues to remain brisk.

Analysts said the longer-term impact of cotton's rally will
be seen in the U.S. during the spring planting season for row
crops. Cotton must compete with grain crops whose own prices
have scaled multi-year highs.

On Monday, the U.S. Department of Agriculture released its
10-year baseline figures showing planting forecasts rose to
12.8 million acres, yielding a crop of 19.3 million bales in
2011 from 17.817 million bales in 2010.

While the latest figures provide a statistical reference,
analysts said, the industry will be watching for the USDA's
potential plantings report on March 31 to see if the price
gains lure more American farmers to plant cotton in 2011.