Cotton futures fell Tuesday after an early rally lost steam, as a strengthening dollar weighed on a market already beaten down about fears of lowered consumption from China, the world's biggest cotton consumer.
Cotton futures for the most-actively traded December contract lost 1.4% to end at 63.16 cents a pound, after being up more than 1% in early trading. The market was lifted early by the rally across other global equity and commodity markets after Monday's massive selloff, and U.S. data reducing crop quality expectations for the coming harvest.
But the market turned south as the U.S. dollar rose more than 1% against a basket of other global currencies. A strong dollar can weigh on commodity prices by making them more expensive for buyers using foreign currency. Meanwhile, large questions remain about whether China's appetite for cotton will remain strong in light of the recent devaluation of its currency amid slowing economic growth and rocky financial markets.
"Cotton's got big demand problems, because China's out of the market," said Jack Scoville, a vice president at brokerage Price Futures Group in Chicago.
The $4.4 billion financial market for cotton, like most markets, has been pummeled by China's currency devaluation amid rocky financial markets and slowing economic growth, but has been rebounding from multi-month lows amid strengthening supply-and-demand fundamentals.
Heavy rains followed by hot temperatures in Texas earlier this year led to fears of an oversized crop at a time of weak demand, particularly in light of the softening conditions in China, the world's top cotton consumer. But estimates from the U.S. Department of Agriculture earlier this month suggested cotton stockpiles and production contracted, and weekly updates to crop quality assessments have suggested the amount of good quality cotton could be lower than previously expected.
If borne out, those factors could help bring supplies more in line with demand. "Crop conditions continue to deteriorate, which may support" market prices, research consultancy the Hightower Report said in a note.
In other soft commodity markets, cocoa rose 0.6% to $3,108 a ton, frozen concentrated orange juice was about flat at $ 1.995 a pound and sugar rose 2% to 10.6 cents a pound. Arabica coffee fell 0.9% to $1.2055 a pound.