By LESLIE JOSEPHS And ALEXANDRA WEXLER
NEW YORK—Cotton prices tumbled to their lowest in nearly five years on Thursday, as a weaker global economic outlook reinforced expectations of poor demand.
Cotton for December delivery on the ICE Futures U.S. exchange fell 3% in price to 66.05 cents a pound, the lowest settlement for the most-actively traded contract since Oct. 13, 2009. It was the largest one-day drop since June 18.
The International Monetary Fund cut its global economic growth forecast for this year to 3.4% from an April forecast of 3.7%, damping sentiment in the market. Cotton prices are particularly sensitive to economic data, since demand for the fiber is tied to consumer spending on items such as apparel, bed sheets and towels.
"Poor economic performance is certainly going to cut into commodity usage," said Sharon Johnson, a cotton specialist and introducing broker for KCG Futures in Atlanta. Cotton futures are trading below their 10-year average of about 74 cents a pound and the 20-year average of 69 cents a pound.
And the latest data show cotton demand is already slipping. The U.S. Department of Agriculture reported on Thursday that foreign buyers had canceled some of their orders for the fiber. Net export sales of upland cotton, the variety most commonly grown in the U.S., for the current marketing year were reduced by 1,900 bales during the week ended July 17. The marketing year ends July 31.
Cotton prices are also struggling because of a pickup in U.S. production. Earlier this month, government forecasters increased their estimate for U.S. cotton production during the season that begins Aug. 1 by 10% to 16.5 million 480-pound bales, exceeding market expectations for a 4.7% increase from June's estimate.
The drop in cotton prices could spark defaults from mills that contracted cotton at higher prices, said Jordan Lea, co-owner of Greenville, S.C., cotton merchant Eastern Trading Co. After prices plunged from a post-Civil War high three years ago, a wave of defaults by mills hit balance sheets at some of the largest cotton traders, sparking a wave of legal battles, some of which are still unresolved. "It's always the elephant in the room," Mr. Lea said. "Anytime you get a move down like this, the risk exists."
