NEW YORK, Mar 09, 2010 (Dow Jones Commodities News via Comtex) -- ICE Futures U.S. cotton fell 2% Tuesday in consolidation amid spillover pressure from the stronger dollar and weaker grains.
Cotton for May delivery settled down 171 points at 80.33 cents a pound. Futures have fallen 5% since March 1, when the market reached two-year highs. The market rallied as speculators bought on expectations for tight supplies created by weaker-than-expected production and growing world demand fueled by economic recovery. However, demand has backed off as prices stray from lower levels where mills buy.
"The demand out of China is still somewhat quiet, and it needs to be there constantly to feed this market, otherwise it looks like it got ahead of itself," said Andy Ryan, risk management consultant at FCStone in Nashville.
China is the world's top cotton importer, producer and textile manufacturer. The majority of U.S. cotton exports are shipped to China. The U.S. is the world's No. 3 cotton producer and the top exporter.
Cotton also came under pressure Tuesday from the stronger dollar and weaker prices in Chicago Board of Trade soy, corn and wheat.
The greenback firmed on continued concerns about European debt. Traders sell contracts when the strong dollar makes them more expensive in other currencies.
Weak CBOT grains weighed on cotton as markets compete for spring planting acres via futures prices. Farmers plant the crop that will bring them the highest returns. The benchmark December 2010 cotton contract, however, shrugged off those grains to close modestly higher.
Traders are waiting for the U.S. Department of Agriculture's March crop production report, scheduled for 8:30 a.m. EST Tuesday.
The USDA is likely to lower its estimate for domestic cotton production in the ongoing 2009-10 crop year as ginnings data are below projections, according to analysts surveyed by Dow Jones Newswires. However, the USDA may marginally increase the outlook for U.S. exports as world supplies are forecast to be lower, analysts said.
Analysts expect the report to give little direction to the market as the outlooks are well-known, they said.
"If the report's a non-event, I can see this market moving sideways to lower," said Boyd Cruel, senior softs analyst at Vision Financial Markets in Chicago.
Futures have risen sharply and are now due to incur some corrective losses, analysts said.
If the report contains no surprises, May cotton could retreat to the 74- to 75-cent level, Cruel said.
ICE daily cotton stocks increased by 20,149 500-pound bales Monday to total 651,055 bales, with 45,991 bales awaiting review and 16,325 decertification orders, according to exchange data.
ICE cotton open interest--the number of active positions left at the end of the session--decreased by 934 positions Monday to total 184,635, according to the exchange.
Volume was estimated 19,573 lots. In options, approximately 6,682 calls and 2,563 puts traded, according to exchange data.
Close Change Range
Mar 79.73 -242 pts 79.73-81.90
May 80.33 -171 pts 79.81-82.04
Dec 75.37 + 10 pts 74.45-75.37
