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Cotton Extends Drop as Underproduction May Turn Overpriced

March 21, 2013 at 18:48 by Andriy Moraru

Cotton, which is in a rally since November 2012, resumed its decline from a yearly maximum reached on March 15. The main idea behind the rally was an increasing global demand combined with farmers’ reluctance to sow cotton. It turns out, those factors are not enough to fuel further price growth.

China, which is a the largest cotton producer, is expected to increase demand leading to possible global shortages as the farmers, especially in the United States, preferred to sow grains instead of cotton. The latter was traded at relatively low levels versus such commodities as corn, soybean and rice, whose prices have been greatly accelerated by the 2012 drought in many world’s regions. As the producers’ plans for cotton plating declined, so did the analysts’ forecasts for their output, eventually leading to a rally.

The current correction could be the end of the rally but it could also turn out to be a small technical slump resulting from speculative profit-taking. Anyway, the cyclical nature of the recent price behavior is evident with cotton.

Cotton futures for May delivery was trading near 88.28 cents per pound as of 18:31 GMT on ICE today after closing at 89.10 cents per pound yesterday. It has reached as high as 93.93 cents per pound during March 15 trading session — the maximum level in 12 months.

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