Cotton futures tumble to 16-month low in risk-off trade


Forexpros – Cotton futures declined on Wednesday, trading at the lowest level in nearly 16 months as growing fears that euro zone’s sovereign debt crisis was worsening prompted investors shun riskier assets.

On the ICE Futures U.S. Exchange, cotton futures for March delivery traded at USD0.8624 a pound during European afternoon trade, tumbling 1.23%.

It earlier fell by as much as 1.4% to trade at USD0.8608 a pound, the lowest since August 12, 2010, when prices hit USD0.8328 a pound.

Agricultural commodities continued to be affected by outside influences after Italy’s Treasury auctioned the full targeted amount of EUR3 billion of five-year government bonds, at an average yield of 6.47%, up from 6.29% at a similar auction last month.

Following the auction, the yield on Italian 10-year bonds rose above the critical 7% threshold, re-approaching the euro-era highs hit last month.

Also weighing on sentiment, the Federal Reserve warned on Tuesday that market turbulence stemming from the crisis in the euro zone posed a threat to the U.S. economy.

The central bank made no changes to interest rates or its bond-purchase program, disappointing investors that were hoping for indications of a fresh round of asset purchases.

The downbeat outlook prompted investors to shun riskier assets, such as stocks and commodities, and flock to traditional safe haven assets like the U.S. dollar.

The dollar index, which tracks the performance of the greenback versus a basket of six other major currencies, was up 0.31% to trade at an 11-month high of 81.22.

A stronger dollar reduces the appeal of U.S. crops to overseas buyers and makes commodities less attractive as an alternative investment.

Cotton prices have declined in five of the last six trading sessions and have lost nearly 6% since the beginning of December, amid concerns over an economic ‘hard landing’ in top consumer China and fears that Europe’s debt crisis will result in a liquidity squeeze in financial markets.

Elsewhere on the ICE Futures Exchange, coffee futures for March delivery fell 0.85% to trade at USD 2.2075 a pound, while sugar futures for March delivery slumped 0.7% to trade at USD0.2334 a pound.