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NY cotton ends off, futures pressured by options

NEW YORK: NYCE cotton futures settled sharply lower Wednesday, driven south mainly by pressure from options activity of a major Memphis merchant and rain in West Texas which sparked speculative fund selling into stops.

"I think this is a short-term correction prompted by rains in (West) Texas, technical weakness and bullying (in the options pit) by a major Memphis merchant," Alan Feild, broker for STA Trading Services, said.

Sharon Johnson, cotton specialist for Frank Schneider and Co. Inc. in Atlanta, said a fall in the Cotlook Index A futures by 0.20 to 58 cents, rains in Texas and options play by the Memphis merchant pressured futures.

"It's been lokking toppy for two weeks," she said.

Key May cotton went out 1.52 lower to end at 59.86 cents a lb, near the bottom of its 61.15-59.80 cents trading range. New crop December lost 1.08 to 61.70 cents, moving from 62.30-61.65 cents.

The rest ranged were 1.41 cents easier to unchanged.

News of plentiful rain in the key growing area of West Texas and a market that had seemed to be technically weaker prompted the initial move south in cotton, brokers said.

"This is the first time West Texas has received showers in excess of 1.0 inch this year," said STA Trading in a report. "The showers today were comprehensive and beneficial."

Initial market losses were being held in check by trade support, but cotton came under renewed pressure when the major Memphis-based merchant began buying around 700-900 May 61 puts and selling a similar amount of mainly December 70 calls, dealers said.

"Apparently, they were selling the calls to pay for the puts," one broker said, adding the activity spilled over into futures and sent cotton skidding south.

When the funds saw the market break through trendline support, stops were triggered, the traders said.

Turning to the weekly USDA cotton export sales data, analysts said they believe net upland sales will likely touch 40,000 to 70,000 running bales (RBs) while shipments should remain robust at between 140,000-190,000 RBs.

"The report will have only a minor impact on the market as the technicals and the weather are the main focus now," said STA Trading.

On a technical basis, Feild said he believes resistance in May cotton should be seen at 61 cents. He pegged support at the session low of 59.80, 59.10, and then 58.75 cents.

Estimated volume in the NYCE cotton market reached 14,000 lots, against the previous volume of 10,407 lots.

The NYCE is a subsidiary of the New York Board of Trade.-Reuters