Cotton price plunge accelerates as dollar soarsCotton price plunge accelerates as dollar soars

Cotton's losses accelerated on Tuesday as a soaring dollar added to fears for Chinese demand in persuading funds to leave, while producers rushed to make the most of prices which remain high by historical standards.

New York's near-term December lot, freed from limits on daily moves by entry into the expiry process, plunged 9.1% to 110.85 cents a pound, its lowest for more than a month.

At that level, the contract was down nearly 30% from the record high for a near-term cotton lot set nine trading sessions ago.

The March contract fell 6.0 cents, the maximum allowed by the exchange, to 111.79 cents a pound. A close at that level would represent a third successive limit-down finish.

'Bit of an unknown'

Many commodities struggled on Tuesday, as the dollar soared 1.2% against a basket of currencies, undermined by lingering eurozone debt fears and the outbreak of hostilities between North and South Korea.

A stronger dollar, viewed as a safe haven by investors, makes assets denominated in it less competitive to buyers in other currencies.

Cotton's particular fall was attributed to its exposure to China, the biggest consumer, importer and grower of the fibre, which on Monday restated its determination to clampdown on soaring farm commodity inflation
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The China Banking Regulatory Commission said it would crack down on use of loans for activities such as speculation and hoarding which can artificially inflate crop prices.

"China, and how they will react, is a bit of an unknown. Funds aren't waiting around to find out more," a London analyst told Agrimoney.com.
Reasons to sell
Furthermore, US Department of Agriculture data released late on Monday showed the proportion of cotton harvested hitting 86%.

"While this year's cotton harvest in China is behind schedule, the crop progress report... shows that the harvest in the US is still progressing faster than the average for past years," Commerzbank said.
At Hightower Report, Terry Roggensack said he was hearing that the crop in Texas, America's top cotton-producing state, was "in good shape".

Meanwhile, producers were accelerating to take advantage of prices which, even if well past their peak, were high by historical standards, and up more than 50% over the past year.
And technically, the crop was weak too, with the March contract falling through a key support level at 112.75 cents a pound, the 50% retracement level of the rally, "as if it wasn't there".

Cotton vs sugar

The decline in cotton is significantly faster than sugar's correction from a 29-year high reached in February, when a better-than-expected Indian crop, and the release of European stocks, sent funds fleeing.
Mr Roggensack questioned whether cotton would be able to achieve the same rebound achieved by sugar, which earlier this month set a fresh 29-year top.
"The southern hemisphere looks like having good production. A lot of traders are saying there will be plenty of cotton all over the world next year," he told Agrimoney.com.
"That is different from sugar. There would more reason to buy sugar on the break at the moment".


Source : http://www.agrimoney.com/news/cotton-price-plunge-accelerates-as-dollar-soars--2521.html