Cotton futures slump for 2nd day on lack of Chinese buying

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Forexpros – Cotton futures declined for a second day on Wednesday, falling to a four-day low as a lack of physical buying from consumers in China coupled with a broadly stronger U.S. dollar weighed on the fiber.

On the ICE Futures U.S. Exchange, cotton futures for March delivery traded at USD0.9725 a pound during European afternoon trade, dropping 0.94%.

It earlier fell by as much as 1.02% to trade at USD0.9721 a pound, the lowest since January 19.

Trading volume was reportedly thin, as many Asian markets, including top consumer China remained closed for the Lunar New Year holiday.

Without Asian markets “the floor for prices could be fragile this week,” London-based financial service provider Barclays said in a report Tuesday.

Cotton prices rose nearly 4% in the four sessions leading up to Monday, buoyed by indications demand from China will remain strong in the near-term. Prices are up almost 9% since the beginning of 2012.

The strong gain prompted some market participants to close out their positions and lock in profit before heading out for China’s week-long Lunar New Year holiday, traditionally a weak period for cotton consumption.

China is both the world’s largest producer and consumer of the fiber.

Meanwhile, agricultural commodities came under further pressure from a broadly stronger U.S. dollar. The dollar index, which tracks the performance of the greenback against a basket of six other major currencies, was up 0.6% to trade at 80.47.

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

Demand for the safe-haven greenback was boosted amid growing concerns over a possible Greek debt default, while caution ahead of the Federal Reserve’s rate statement later in the day provided further support.

Cotton traders shrugged off a report from India’s Textile Ministry saying that the nation’s cotton production will be lower than previously projected after diseases damaged crops and cut yields in the states of Maharashtra and Andhra Pradesh.

India is the world’s second largest cotton grower.

Elsewhere, on the ICE Futures Exchange, coffee futures for March delivery dipped 0.1% to trade at USD 2.1980 a pound, while sugar futures for March delivery shed 0.35% to trade at USD0.2468 a pound.

Source: http://www.forexpros.com/news/commodities-news/cotton-futures-slump-for-2nd-day-on-lack-of-chinese-buying-229539

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