Forexpros – Cotton futures retraced gains on Tuesday, coming off a three-week high after India’s Farm Minister called for revoking a ban on Indian cotton exports, which fuelled a 4.5% rally in the previous session.
On the ICE Futures U.S. Exchange, cotton futures for May delivery traded at USD0.9239 a pound during European afternoon trade, easing up 0.21%.
It earlier rose by as much as 2% to trade at USD0.9416 a pound, the highest since February 15.
Cotton futures were sharply higher during the Asian trading session as markets continued to digest news of an unexpected Indian export ban on Monday, the second time in nearly two years.
The surprised announcement fuelled fears over tighter global supplies and sent cotton prices soaring.
But futures came off their highs after India’s Farm Minister Sharad Pawar said earlier that he asked for the export ban to be revoked, less than 24 hours after it was announced.
“I have raised it with the prime minister,” Pawar said. “It is highly objectionable and it’s up to the prime minister now to take a view.”
A government panel will discuss the ban on Friday, the textile secretary said.
Cotton production in India is expected to reach a record 34.5 million bales in the 2011-12 marketing year, up from 33.9 million bales last year.
India, the world’s second largest cotton exporter after the U.S., has already exported nearly 9.5 million bales in the current marketing year, according to the Indian Cotton Federation.
The figure is well above the government’s full-year forecast of 8.4 million bales, as exporters took advantage of the price differential amid firm overseas demand, specifically from China.
China accounts for more than 70% of India’s cotton exports.
Also weighing on prices, IntercontinentalExchange, operator of the ICE Futures Exchange raised the amount of cash that traders must deposit for speculative positions, it announced late Monday.
ICE increased the so-called initial margin by more than 76%, pushing small investors out of the market as it raises the cost to trade a futures contract.
Meanwhile, agricultural commodities were affected by outside influences on Tuesday, as markets continued to fret over an economic slowdown in China.
A deeper slowdown in China, the world’s second biggest economy, would impair a global expansion that is already faltering because of Europe’s debt crisis.
Data released earlier in the day confirmed that the euro zone’s economy contracted 0.3% in the final three months of 2011.
Meanwhile, worries over Greece’s debt burden persisted ahead of the March 8 deadline for bondholders to join the agreement under which they will exchange their existing Greek government bonds for new paper in a swap deal.
Demand for cotton, as a non-food agricultural commodity, is seen as more closely linked to economic conditions and consumer sentiment than that for other farm crops.
Elsewhere, on the ICE Futures Exchange, coffee futures for May delivery fell 0.55% to trade at USD2.0035 a pound, while sugar futures for May delivery dropped 1.2% to trade at USD0.2432 a pound.