Nearby and most-active cotton futures fell sharply Thursday as speculators
exited positions over concerns about whether recently higher prices were
justified by the supply/demand picture and also by the market's inability to
hold above a key technical chart support level.

Nearby May cotton settled down 1.98 cents, or 2.37%, to 81.65 cents per pound
on ICE Futures U.S. The most-active July contract finished 1.60 cents lower, or
1.88%, to 83.30 cents. It bottomed at 83 cents, its weakest level since April
20.

"We just had a loss of momentum, which has been occurring over the last three
or four sessions," said Peter Egli, director of risk management at Plexus
Cotton Ltd.

Then during the latter part of the New York morning, the selloff accelerated
when July cotton broke down below the 84-cent area, he said.

"Once, that happened, we saw some specs taking profits," Egli said. Traders
were selling to exit positions in which they previously bought.

The 84-cent area was prior chart resistance that failed earlier this month,
thus turned into support. Previously, the market had put in a triple top around
here between early March and early April.

Keith Brown, principal of Keith Brown & Co., also cited a move by longs to
exit positions in July cotton, particularly as U.S. cotton-export data hasn't
been strong enough to "reinvigorate the market."

However, he pointed out, at the same time traders were moving out of the July
futures, which represents the "old crop," they were moving into the December
contract, which represents the "new crop."

There is potential for the December futures to pick up, particularly if there
is adverse weather in cotton-growing areas during the coming growing season,
Brown said.

Egli pointed out that the December futures remain in a technical uptrend,
whereas July fell below support. July cotton had recently built a large premium
over the December contract, and some traders questioned whether this was
justified by the amount of supply represented by ICE certified stocks in excess
of 1 million bales, he said.

"So they have started to sell July and buy Dec[ember]," Egli said. "They feel
July had no justification being up there with those certified stocks."

Much of the recent strength in the July futures had been the result of fresh
speculative buying, plus buying to cover positions in which traders had
previously bought, when the market had broken up through resistance, he said.

"That propelled the market up, then the momentum stalled," he said.

ICE daily cotton stocks increased by 4,280 500-pound bales Wednesday to total
1,014,744 bales, with 18,386 bales awaiting review, according to exchange data.

ICE cotton open interest--the number of active positions left at the end of
the session--increased by 1,498 positions Wednesday to total 191,347, according
to exchange data.

Electronic volume as of 2:30 p.m. EDT (1830 GMT) Thursday was estimated at
17,897 lots. In floor options trading, there were approximately 3,789 calls and
7,017 puts, according to exchange data.

Close Change Range
May 81.65 dn 1.98c 81.58-83.97
July 83.30 dn 1.60c 83.00-85.51
Dec 77.57 up 0.08c 76.80-77.90