US: Cotton Declines by Daily Limit as Rally to Record Seen Overdone

Cotton dropped by the daily maximum, slumping for the first time in eight days, as recent gains to a record were seen exaggerated and investors sold the fiber to lock in profits.

May-delivery cotton fell 7 cents, or 3.3 percent, to $2.0714 a pound on ICE Futures U.S. Before today, the price gained 21 percent in seven days, the longest rally since September 2009. The contract reached a record $2.197 yesterday.

Cotton’s 14-day relative strength index has since March 4 been above 70, a level some investors use to predict that the price of an asset is poised to fall. Open interest, or futures outstanding, fell to 175,284 contracts, compared with 206,824 contracts at the end of December.

“It’s a correction as the price went up too much and too fast,” said Toshimitsu Kawanabe, an analyst at commodity broker Central Shoji Co. “There’s little change in fundamentals, supply is scarce this season.”

Cotton futures, which have more than doubled in the past year, are the best performer among the 19 commodities on the Thomson Reuters/Jefferies CRB Index. China’s January imports jumped 31 percent from a year ago to 390,720 metric tons, the customs agency said Feb. 24. The country’s purchases surged 86 percent to 2.84 million tons in 2010 from a year earlier.

The U.S. is forecast to be the largest exporter in 2010-2011, followed by India, Uzbekistan, Australia and Brazil, according to the U.S. Department of Agriculture. China is the world’s biggest consumer of the fiber.

China Output

China aims to boost output by 13.9 percent to 6.8 million tons this year, according to a government report issued at the meeting of the National People’s Congress in Beijing on March 5. Production fell 6.3 percent to 5.97 million tons last year, the National Bureau of Statistics said Feb. 28.

Global cotton production will rise 11 percent to a record 27.6 million tons in the year starting Aug. 1 as prices boost output, the International Cotton Advisory Committee said March 1. U.S. output may reach 4.24 million tons, it said.

On the Zhengzhou Commodity Exchange in China, cotton futures for September delivery fell 5.3 percent to 31,350 yuan ($4,774) a ton at the 11:30 a.m. local time break. The contract reached a record 34,870 yuan on Feb. 17.