By Julie Wernau

Cotton prices posted their steepest percentage drop since Oct. 31 Monday as bullish speculators took profits ahead of the holidays.

Cotton for March delivery lost 2% to end at 69.57 cents a pound on the ICE Futures U.S. exchange, the lowest close since Nov. 14.

Mr. Rose also said that index-fund rebalancing in 2017 will likely result in fewer funds taking long positions in cotton.

As of last Tuesday, hedge funds and other speculators betting on higher prices for cotton outweighed bearish positions by 83,095 contracts, more than double the contract's position at the start of the year.

Fundamentally, the cotton market has been stuck in a tight trading range as market players weigh strong overseas demand for cotton against a strong dollar that could damp demand for all commodities and government supply estimates that traders have read as mostly bearish.

Sales of the fiber overseas reported last week were the second highest in the marketing year at 318,000 bales and outpaced the weekly rate needed to reach U.S. Department of Agriculture export targets.

"Kindling and other wood are being stacked higher and higher in preparation for an explosive fire under the market," O.A. Cleveland, consulting economist at Cotton Experts, noted.

Still, the USDA raised production and ending stocks above analysts expectations in its monthly forecast of supply and demand for the fiber this month. The USDA placed ending stocks at 4.8 million bales versus 4.5 million in November, boosted production to 16.52 million bales due to better than expected crops in Texas and increased exports to 12.2 million bales.