By Leslie Josephs
NEW YORK--Cotton futures tumbled Tuesday after a better-than-expected forecast for Indian production took the steam out of a recent rally that had also curbed demand.
Cotton for delivery in December on ICE Futures U.S. fell 4.3%, or four cents, to end at 88.86 cents a pound, the lowest settlement in almost two weeks. It was the biggest drop for the most actively traded contract since June 21, 2012.
The drop was limited by the exchange's daily limit of four cents. The limit will increase to five cents in the next session, the exchange said, citing its trading rules.
The Cotton Association of India said good rainfall during the monsoon season would mean a 4.6% increase in output of the fiber this season. In its first forecast for the season, the industry group said Indian growers would reap a crop equal to about 29 million bales, each weighing 480 pounds.
The estimate is one million bales more than the U.S. Department of Agriculture forecast for the country last week.
The potential for greater production from India, the world's second-biggest cotton grower after China, could increase global supplies, which are already high. At the end of July, 86.35 million bales of cotton were in warehouses around the world, according to the USDA.
The potential for greater production from India, the world's second-biggest cotton grower after China, sparked the selling of futures, which rose 9.6% from the end of July to culminate in a nearly 17-month high last week.
The recent rally had been inspired by investors, not mills that turn the fiber into thread, yarn or cloth, traders said.
"There are no buyers until you get into the mid- to low 80-[cent range]," said Chris Kramedjian, a risk management consultant at brokerage INTL FCStone. "Anyone who looks at the fundamentals knows that we're 10% away from the price from where physical interest is."
Money managers, including hedge funds, had been piling into the cotton-futures market this year, placing bets that prices would rise. In the week ended Aug. 13, these investors added 16,300 such bets, up 23% from the previous week, according to the Commodity Futures Trading Commission.
"I think now they're trying to get the hell out of Dodge," said Sharon Johnson, an Atlanta-based senior cotton specialist at KCG Futures.
