New york cotton drops, options expiry leads to profit taking

New york  (february 16, 2011) : us cotton futures fell sharply close on monday, with the key march contract settling down more than 2 percent, after options expirations left many speculators holding long futures positions, prompting them to grab profits in a selling spree.
over the weekend, cotton call options that expired in the money on friday were assigned and exercised, resulting in a slew of new long futures positions among speculative interests at monday's start, brokers said. "this morning they showed up with new positions in their hands ready to take their profits. if you're long calls and the market closes at the highest it's ever been, it's impossible not to have profits," said ron lawson, managing director, of logicadvisors.com.
benchmark march cotton contracts on ice futures us slid 2.06 percent to end down 3.92 cents at $1.8605 per lb, after falling as low as $1.8510 during the session. on friday, spot fiber futures shot up to an all-time high of $1.9455 per lb, a level exceeding cotton's previous record.
until friday, prices had never surpassed levels seen during the us civil war, estimated by historians around $1.89. the civil war lasted from 1861 to 1865. cotton climbed 13.17 percent last week. since the beginning of the year, cotton has advanced over 35 percent in the second wave of a rally that began in august 2010.
while speculators unwound some of their long positions on monday, analysts said, tight supply/demand fundamentals remain in tact for the cotton market. many observers still expect prices to head for $2 per lb and even $3 a lb, eventually.
"we're still very bullish long-term. with the dynamics of the supply/demand fundamentals, nothing has changed. it's just that for every inhale you need an exhale. we had quite an inhale, so we're due for an exhale," said lawson.
analysts said scarce supplies were behind the rally, in the face of the strong demand. most of the northern hemispherecotton crop has already been harvested and the pace of cotton export sales by the united states seen in usda's weekly export sales data continues to remain brisk.
analysts said the longer-term impact of cotton's rally will be seen in the us during the spring planting season for row crops. cotton must compete with grain crops whose own prices have scaled multi-year highs. on monday, the us department of agriculture released its 10-year baseline figures showing planting forecasts rose to 12.8 million acres, yielding a crop of 19.3 million bales in 2011 from 17.817 million bales in 2010.
while the latest figures provide a statistical reference, analysts said, the industry will be watching for the usda's potential plantings report on march 31 to see if the price gains lure more american farmers to plant cotton in 2011.

(Source: http://www.brecorder.com/news/cotton-and-textiles/world/1155776:new-york-cotton-drops-options-expiry-leads-to-profit-taking.html?hl=cotton)