Cotton futures dropped more than 3 percent on Monday, the most in more than four months, as optimism over the US government’s monthly crop report turned to gloom about global oversupply and waning demand from China, the world’s No 1 cotton buyer. Coming off an eight-week high, the most-active December cotton contract on ICE Futures US closed down 2.16 cents, or 3.2 percent, at 65.84 cents a lb, its largest daily drop since early May, on healthy turnover.
The selling all but wiped out last week’s gains ahead of and following the US Department of Agriculture’s monthly crop report on Thursday. Traders initially interpreted the report as bullish because it slashed expectations of US cotton output by 1 million bales. But the USDA also forecast an increased global supply of 106.3 million bales, a new record, up from an August estimate of 105.1 million bales, which traders said was responsible for Monday’s dramatic selloff.
“The rally was overdone in the first place,” said Lou Barbera, a broker at ICAP Cotton in New York. “They (bullish investors) just took the first snippet about the US crop being down.” Monday’s selling deepened cotton’s losses, putting it on track for a 10-percent fall in the third quarter, its second straight quarterly drop, with two weeks left in September.
Prices have plunged by almost a third since May amid concerns that China’s decision to end its stockpiling program will curb buying from the world’s biggest textile market while US and Indian output is expected to grow. “This is a bear market of biblical proportions,” said Jobe Moss, a broker with MCM Inc in Lubbock, Texas. “The momentum is still in the macro sense to the downside.” Even so, traders said cotton will likely find support at 64.50-65.00 cents, which could trigger another mini-bounce.