NEW YORK, Jan 3 (Reuters) - U.S. cotton futures finished
quietly lower on Monday, reversing lower in options-related
trade following recent volatile dealings that pushed the market
up nearly 92 percent in 2010, dealers said.

'Starting the new year here, we continue to hear of demand
rationing occurring because of these record high prices, even
though we're off the highs by 17 cents,' said Sharon Johnson,
senior cotton analyst at Penson Futures in Atlanta.

'We're still well above historic prices going back 150
years. Demand rationing is occurring.'

The key March cotton contract on ICE Futures U.S.
closed down 2.61 cents to finish at $1.4220 per lb, in a wide
trading range from $1.4137 to $1.4650 a lb.

Total volume, however, was thin at 15,541 lots as many
markets in other countries were closed after the New Year
holiday fell on the weekend.

The market was firm in extremely thin dealings during the
early hours of trade, coinciding with a weak U.S. dollar,
but prices turned lower amid a lack of new fundamentals
after the ICE Futures U.S. options floor opened.

'I think whoever may have bought cotton may be buying puts
today, taking a little bit more of a bearish slant to cotton
values,' Johnson said.

This shift could be because market participants are already
long futures and want to maintain their position, she said.

While index funds were in the soaring market in 2010, they
were expected to lower their exposure in cotton futures in
2011.

'You may see more fund activity but not necessarily from
the index side,' Johnson said.

'You may see the trend-following funds going short cotton.
So there may be activity but not necessarily on a net basis
from the long side.'