Cotton futures slid Thursday as traders began to doubt that the pace of U.S. cotton exports would meet government projections.
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Cotton for July delivery fell 2.2% to end at 71.91 cents a pound on the ICE Futures U.S. exchange, the lowest close for the most actively traded contract since Jan. 3, 2017.
Rose Commodity Group said Thursday that while the demand for U.S. cotton for export has been decent and overseas demand for the upcoming crop has been excellent, the current level of old crop commitments suggests that the Agriculture Department's export projections of 14.5 millions bales for the 2016/2017 season may be 300,000 to 400,000 bales too high.
Certified stocks of cotton have been piling up, reaching 473,000 bales, which, along with a recent drop in cotton futures, could inspire a buyer to take delivery of those stocks.
"With planting as large as it is, it is unlikely that a crop disaster will occur that would spin the market completely around and turn the fundamentals to be exceedingly bullish, especially with worldwide cotton sowings expected to expand and stocks outside China increase once again," said Judith Ganes, president of J. Ganes Consulting.
She said the best opportunity for a bull move in cotton is if prices sink first in order to stimulate strong buying from mills.
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The latest on-call cotton report released after Thursday's close shows that mills that had been waiting to fix their purchases in the July contract have started to fix those sales by buying futures in earnest before the expiry.
A speculative surge in the cotton market last month caught cotton spinners and textile mills wrong-footed. Most merchants and mills were bearish on cotton prices at the beginning of this crop season.
Those merchants and textile mills held a large number of short positions in the July contract as a hedge against their physical cotton, but cotton's bullish run has caught them off guard.
The latest on call report shows 15,500 contracts remain to be fixed in July and that 9,060 contracts were fixed in the week ended June 9.
Since then, traders say it is likely more mills have taken advantage of a time when long-positioned speculators are moving out of cotton, buying in a week that has seen five straight sessions of losses.
"The spec longs are now clearly on their way out of July and we believe that neither bullish export sales reports nor a potentially friendly WASDE report will compel them to reenter the long side this late in the game. Some of them may take their chances on a long position in December instead, while other simply call it quits," Plexus cotton said in a note.
In other markets, raw sugar for July fell 1.1% to end at 13.47 cents a pound, cocoa for September lost 0.3% to close at $2,069 a ton, arabica coffee for September was up 0.2% to settle at $1.2805 a pound, and frozen concentrated orange juice for July rose 1.8% to close at $1.4275 a pound.
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(END) Dow Jones Newswires
June 15, 2017 17:05 ET (21:05 GMT)