Cotton futures plunged the most allowed by ICE Futures U.S. as trading surged to a record amid signs that demand may slow in China, the world’s biggest user.
In New York, cotton futures for March delivery tumbled the exchange maximum of 6 cents, or 4.1 percent, to settle at $1.4111 a pound at 3:05 p.m. Earlier, the price rose to $1.5195, the highest level in 140 years of trading. ICE said estimated volume for all contracts was 100,270, an all-time high.
China’s central bank raised lenders’ reserve requirements as October’s larger-than-forecast $27.1 billion trade surplus threatened to accelerate inflation. Excessive speculation has spurred cotton trading on the Zhengzhou Commodity Exchange, said Zhou Wangjun, the deputy director of pricing at the National Development and Reform Commission.
“The Chinese government is actively trying to squash excess speculation,” said Andy Ryan, a senior risk-management consultant at FCStone Fibers & Textiles in Nashville, Tennessee. “There’s a little loss of momentum without China going crazy.”
In the past 12 months, cotton prices have more than doubled, reaching an all-time high for seven straight sessions.
“The fundamentals are still there,” said Claudio Oliveira, the head of trading at Castlestone Management Ltd. in London. “The USDA report was pretty bullish.”
Prices may rise as high as $2 in one to three months, Oliveira said.
Wide Swings
Cotton plunged by the exchange limit at 10:26 a.m., erasing a gain of as much as 3.3 percent. The price rallied to trade little changed about an hour later. Around 12:50 p.m., the fiber tumbled 6 cents again.
The dollar rose for the fourth session against a basket of major currencies, eroding the investment appeal of raw materials.
“The news out of China and the dollar is just kind of weighing on commodities and cotton in general,” Ryan of FCStone said.
Cotton futures in Zhengzhou advanced to a record for a fourth straight session, boosting costs for textile makers.
The previous ICE record for volume was 85,945 contracts in February 2008.
