* Dollar climbs to 4-mo high on euro, spurring more risk asset selling
NEW YORK, May 16 (Reuters) – Cotton futures closed sharply lower on Wednesday, and set a 20-month low, to extend last week’s 8.4 percent loss as investors sold out of most commodities along with equities in pursuit of cash, analysts said.
While anticipated bumper supplies of the fiber have kept a bearish tone in the futures market, analysts said they thought cotton had been oversold at current levels based on supply/demand fundamentals alone.
“There’s no way to justify these price moves fundamentally,” said Jobe Moss of MCM Inc in Lubbock, Texas, adding that technically, prices are likely to slip to a new low and then rebound.
July cotton on the ICE Futures U.S. exchange ended 2.19 cents, or 2.77 percent, lower at 76.97 cents per lb, after slipping to 76.85, its lowest since September 2010. The high was 79.34 cents. Volume was healthy at 16,029 lots.
On Friday, the contract ended at 78.97 cents in the lowest close for the spot contract since July 2010, and chartists said they saw even steeper declines for this week.
“Cotton is grossly oversold right now,” he said, noting that such steep declines feed on themselves as buyer step out of the market, waiting for prices to stabilize.
Instead, broader global market forces have taken cotton down along with U.S. stocks, the euro and most other commodities, including gold.
All have declined sharply in recent sessions on news that Greece will hold new elections, which some investors fear will send the country into default and jeopardize the euro zone. As a result, they have been selling out of any assets with perceived risk, such as cotton, and fleeing to cash and Treasury securities.
Some analysts pointed out that most commodity markets have been propped up to some degree by dollar weakness and low interest rates, which have created cheap money for investment.
Longer term, however, cotton’s prospects are likely to remain bearish, especially after the U.S. Agriculture Department’s latest monthly crop report estimated world 2012/13 cotton ending stocks at a record 73.75 million (480-lb) bales, up over 10 percent from the 2011/12 level.
New-crop December lost 2.72 cents, or 3.52 percent, to finish at 74.61 cents, after dealing from 74.46 to 77.60 cents.
Total cotton volume on Tuesday was 20,388 lots, down from 23,052 on Monday.
Open interest rose by 1,860 to 188,609 lots on May 15, ICE Futures U.S. exchange data showed.
(Reporting by Carole Vaporean; Editing by Bob Burgdorfer)