Cotton falls to 2-week low on reduced global demand outlook

Investing.com - Cotton futures extended losses from the previous session on Monday, slumping to a two-week low as renewed concerns over declining global demand for the fiber weighed on prices.  

On the ICE Futures U.S. Exchange, cotton futures for March delivery traded at USD0.8970 a pound during European afternoon trade, retreating 0.8%.

It earlier fell by as much as 0.95% to trade at USD0.8958 a pound, the lowest since November 29, when prices fell to a 14-month low of USD0.8850 a pound.

In its monthly World Agricultural Supply and Demand Estimates report published Friday, the USDA lowered its global cotton demand outlook by 2.6% from a month earlier.

According to the agency, demand for the fiber was expected to total 111.34 million bales in the current marketing season ending July 31, down from November’s estimate of 114.27 million.

The USDA forecast global ending stocks for the 2011-12 season at 57.67 million bales, the highest since the 2009-10 season and up from 54.96 million projected a month ago.

The revision reflected “continued weak mill demand owing to an uncertain world economic outlook” and a “shift by clothing makers to more polyester” after cotton prices surged earlier this year.

The USDA’s forecast of U.S. demand was reduced by 200,000 bales, or 5.3%, to 3.6 million bales, reflecting a slowdown in recent months.

Cotton futures have lost nearly 13% in the past four weeks, as concerns over a slowdown in demand from top consumer China and increasing competition for U.S. exports have been dominating sentiment in recent weeks.

Meanwhile, concerns that Friday’s European Union agreement will not be enough to tackle the region’s ongoing debt crisis continued to weigh on broad market sentiment.

EU leaders agreed to implement stricter budgetary rules across the euro zone and to provide EUR200 billion in loans to the International Monetary Fund to assist countries with debt problems.

However, investors remained jittery after the European Central Bank indicated that it had no plans to increase its bond purchasing program, capping its weekly bond purchases at EUR20 billion.

Sentiment was also hit after ratings agency Moody's warned that the debt crisis in the euro zone was still in a "critical" and "volatile" stage, adding that it will revisit ratings of all euro zone member states in the first quarter of 2012.

The news saw the euro drop to a two-week low against the U.S. dollar, while the dollar index, which tracks the performance of the greenback versus a basket of six other major currencies, rallied 1% to trade at 79.94, the highest since October 6.

A stronger dollar reduces the appeal of U.S. crops to overseas buyers and makes commodities less attractive as an alternative investment.

Elsewhere, on the ICE Futures Exchange, coffee futures for March delivery tumbled 2.15% to trade at USD 2.2218 a pound, while sugar futures for March delivery rose 0.75% to trade at USD0.2377 a pound.