Cotton futures skid to four-month low on news of increased supply

As precipitation improved over the last five days across Texas, the country’s biggest cotton producing state, the prospect of improved supplies heightened showed the US government data. The data released after market close on 27 May reinforced expectations that fibre availability will improve in the coming season beginning 1 August. However, the release of the report led to cotton futures falling to a four-month low on 28 May.

The most-active July cotton contract on ICE Futures US settled at US cents 84.87 per pound, down US cents 10, or 0.1 per cent. Prices were on the verge of seeing their first monthly loss since October, as fear of tightening nearby supplies waned after certified stocks have grown. May is likely to end with a 10 per cent loss. Prices remained in technically oversold zone, with a 14-day relative strength index of under 26.

According to the US Department of Agriculture report, in the week ending 25 May, the 15 major cotton growing states had sown 62 percent of crops, just 2 percentage points below the five-year average and increasing rapidly from 46 percent in the preceding week. The government expects output to rise 12 percent to 14.5 million bales in the 2014-15 crop year.

On the exchanges, the July’s premium over December, which represents the 2014/15 harvest, narrowed to around US cents 7 from over US cents 13 in March. Hitherto, a rise in cotton prices and sluggish grains markets spur farmers to grow more crops for the ensuing season.