ICE Cotton Futures Settles Weak in Options-related Pressure

US cotton futures finished quietly lower on Monday, reversing lower in options-related trade following recent volatile dealings that pushed the market up nearly 92 percent in 2010, dealers said. "Starting the New Year here, we continue to hear of demand rationing occurring because of these record high prices, even though we're off the highs by 17 cents," said Sharon Johnson, senior cotton analyst at Penson Futures in Atlanta.

"We're still well above historic prices going back 150 years. Demand rationing is occurring." The key March cotton contract on ICE Futures US closed down 2.61 cents to finish at $1.4220 per lb, in a wide trading range from $1.4137 to $1.4650 a lb. Total volume, however, was thin at 15,541 lots as many markets in other countries were closed after the New Year holiday fell on the weekend.

The market was firm in extremely thin dealings during the early hours of trade, coinciding with a weak US dollar, but prices turned lower amid a lack of new fundamentals after the ICE Futures US options floor opened. "I think whoever may have bought cotton may be buying puts today, taking a little bit more of a bearish slant to cotton values," Johnson said.

This shift could be because market participants are already long futures and want to maintain their position, she said. While index funds were in the soaring market in 2010, they were expected to lower their exposure in cotton futures in 2011. "You may see more fund activity but not necessarily from the index side," Johnson said. "You may see the trend-following funds going short cotton. So there may be activity but not necessarily on a net basis from the long side."

ICE Mar11 Cotton Trend: