Cotton Falls, Halts Rally as U.S. Crop May Improve; Orange Juice Declines

Cotton fell for the first time in five sessions on speculation that crop conditions are improving in the U.S., the world’s top exporter, and that a stronger dollar will limit demand. Orange-juice futures also declined.

As of Aug. 1, 66 percent of the U.S. crop was in good to excellent condition, up from 50 percent a year earlier, government data show. The dollar jumped as much as 0.6 percent against a basket of six major currencies, heading for the biggest gain in two weeks.

“We are going to have some good cotton, and there doesn’t seem to be any doubt about that,” said Jack Scoville, a vice president at Price Futures Group Inc., a broker in Chicago. “The dollar is up a little bit today, so that could be negative for cotton, even though the economic data is decent.”

Cotton futures for December delivery fell 0.33 cent, or 0.4 percent, to close at 79.47 cents a pound at 2:30 p.m. on ICE Futures U.S. in New York, the first drop in five sessions.

Joe Nicosia, the chief executive officer of Allenberg Cotton Co., a merchant based in Codova, Tennessee, said on July 23 that he expects U.S. production will rise to 19 million bales, which would be more than the U.S. Department of Agriculture’s July 9 forecast of 18.3 million bales.

Prices are up 27 percent in the past year, as demand rebounded after the recession and smaller harvests led to a drop in global stockpiles. Yesterday, cotton reached the highest price in more than six weeks as China’s worst flooding in a decade damaged crops. China is the largest grower and consumer.

Price Resistance

The rally didn’t last because prices failed to top 80 cents, a key resistance point for traders, said Sharon Johnson, a senior analyst at First Capitol Group LLC in Atlanta, Georgia. Based on an analysis of the relative strength of the trend, “cotton has an overbought status,” Johnson said.

Hedge-fund managers and other large speculators increased their net-long positions in New York cotton futures in the week ended July 27 for the first time since June, U.S. Commodity Futures Trading Commission data show. Speculative long positions, or bets prices will rise, outnumbered short positions by 12,808 contracts, according to the CFTC.

Prices have rallied even as prospects for an improved U.S. crop signaled supplies will be ample, Johnson said.

“We’ve had the best crop I’ve seen in 20 years,” she said. “I’m astonished the crop conditions have stayed so good.”

In another ICE market, orange-juice futures for September delivery fell 3.4 cents, or 2.3 percent, to close at $1.448 a pound at 2 p.m. in New York, the biggest drop since July 8.

To contact the reporter on this story: Jennifer Johnson in Chicago at Jjohnson133@bloomberg.net

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