NY cotton slides more than 1pc as Fed dashes hope of stimulus

NEW YORK: Cotton futures dropped more than 1 percent on Wednesday, closing near intraday lows after the US Federal Reserve dashed hopes of stimulus measures and warned of deterioration in the world's largest economy.

The market was also dragged lower by the grain market as the blistering rally in soybeans faltered after forecasts of rain in the drought-ridden crop belt.

The benchmark December cotton contract on ICE Futures US settled at 70.56 cents per lb, down 1.09 percent from Tuesday, just off its intraday low of 70.53 cents hit after the FOMC statement which sent the euro lower against the dollar and raised concerns about demand in the clothing and textile sector.

The Fed stopped short of offering new monetary stimulus even as it signaled further bond buys could be in the offing and cautioned that the US economy has lost momentum this year.

Volumes were healthier than the previous two days at above 11,500 contracts, but still well below the year-to-date daily average as institutional and fund money stayed on the sidelines.

Only 8,000 contracts changed hands on Monday, a seven-month low.

"I can't make a living on this volume. We need at least 20,000 a day," said one broker.

The lack of liquidity kept prices in a narrow range. Traders said institutional investors were watching the grains market as crops withered in the worst US drought in decades.

"There's nothing going on. It's up a day and down a day," said Mike Stevens, an independent cotton analyst based in Mandeville, Louisiana.

While some traders say prices could test June's low of 65 cents, others see conditions ripening for a jump, particularly if the US Department of Agriculture cuts its 2012/13 crop forecast in its much-anticipated monthly report on Aug. 10.

Brokers and traders are already reining in estimates for Texas, the largest producing US state, where a prolonged dry spell has hit crops even as growers are still trying to recover from last year's drought - the worst in a century.

Eyes are on India and Pakistan too amid concerns about the delayed monsoon.

The market shrugged off another drop in exchange certified stocks taking the total to just under 37,000 bales, a low last seen in November. Another 7,480 bales were decertified, adding to the large amount of fibers that have been drawn down in recent weeks.

Source: Reuters