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Cotton Tumbles Most in 14 Months on U.S., India Outlook

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Aug. 20 (Bloomberg) -- Cotton futures fell the most in 14 months as signs of improving crops in India and the U.S., the world’s two largest exporters, boosted prospects for global supply.

The Cotton Association of India said today that output will climb 4.6 percent in the 12 months starting Oct. 1 after timely rains boosted yields. As of Aug. 18, 46 percent of the U.S. crop was rated good to excellent, up from 41 percent a year earlier, Department of Agriculture data showed yesterday.

Concern that supplies would tighten as U.S. production declined helped spur a 19 percent rally this year through yesterday, boosting costs for apparel companies including Hanesbrands Inc. Cotton reached a five-month high on Aug. 16 after the U.S. government unexpectedly cut its forecast for domestic production by 3.3 percent. In Texas, the biggest U.S. grower, 35 percent of the crop got the best ratings last week, compared with 22 percent a year earlier, according to government figures yesterday.

“I was not expecting this, and I do not believe that much of the trade was either” after drought ravaged Texas in the past three years, Louis W. Rose, an industry consultant in Memphis, Tennessee, said in an e-mail. The rating “is significant because of the large area planted,” he said.

On ICE Futures U.S. in New York, cotton for December delivery fell by the exchange limit of 4 cents to settle at 88.86 cents a pound at 2:46 p.m. The 4.3 percent drop was the biggest for a most-active contract since June 21, 2012. Trading was 61 percent above the average in the past 30 days, according to data compiled by Bloomberg.

‘Negative’ Estimate

India’s output may climb to 37.2 million bales from 35.58 million a year earlier, the cotton association said. A bale in the country weighs 170 kilograms, or 375 pounds.

India’s estimate “is negative, if not bearish,” Sharon Johnson, a senior market specialist at KCG Futures in Roswell, Georgia, said in a telephone interview. The price slump accelerated after futures dropped below 90.5 cents, she said.

The 14-day relative-strength index was above 70 in the previous five sessions, a signal to some traders that the price may be poised to fall. Hedge funds and other large speculators increased bullish wagers by 25 percent to 79,292 futures and options contracts in the week ended Aug. 13, government data showed on Aug. 16. That marked the highest since September 2010.

‘Warning Signs’

“In the last couple of days, we saw the RSI giving us some warning signs,” Peter Egli, a Chicago-based director of risk management at Plexus Cotton Ltd., said in a telephone interview. “A lot of this advance was sponsored by specs buying, and these guys trade according to technicals. And if you look at momentum oscillators, it gave some ‘sell’ signals, and I think some of them took profit.”

On Aug. 16, the price reached 93.72 cents, the highest since March 15. Cotton rally this year was the biggest among 24 raw materials in the Standard & Poor’s GSCI Spot Index. Today’s drop led the gauge lower.

Cotton’s rally probably limited the appeal of U.S. exports, John Flanagan, the president of Flanagan Trading Corp. in Fuquay-Varina, North Carolina, said in an e-mail. “Above 90 cents, export sales declined in the past and are likely to decline now.”

In the week ended Aug. 8, U.S. export sales of upland cotton slumped 53 percent from a week earlier, government data showed.

On Aug. 12, the USDA said the nation’s harvest will be 13.05 million bales this year, down from 13.5 million forecast last month and the smallest in four years. Analysts expected 13.69 million. A bale weighs 480 pounds, or 218 kilograms.

The agency also said that global production in the 12 months that started Aug. 1 will be 116.38 million bales, down from 118.02 million forecast in July. World consumption was estimated to rise 2.3 percent to 109.85 million bales.

To contact the reporters on this story: Marvin G. Perez in New York at mperez71@bloomberg.net; Luzi Ann Javier in New York at ljavier@bloomberg.net

To contact the editor responsible for this story: Steve Stroth at sstroth@bloomberg.net

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