Cotton Prices Fall as Equity Indexes Decline, Dollar Gains

By Shruti Date Singh

Dec. 1 (Bloomberg) -- Cotton futures fell the most in almost a week after U.S. equities declined and the U.S. Dollar Index gained, renewing concern demand for commodities will drop.

The Dow Jones Industrial Average, which some traders consider an indicator of commodity demand, fell as much as 7.8 percent today after gaining 9.7 percent last week. The Reuters/ Jefferies CRB Index dropped as much as 3.7 percent as an index measuring the dollar against six other currencies gained as much as 0.9 percent. A stronger dollar makes commodities more expensive for buyers holding other currencies.

“The stronger dollar, weaker crude and lower grain prices may be playing a part and the lower equities,” said Hibbie Barrier, a director at Avondale Partners in Nashville, Tennessee.

Cotton futures for March delivery fell 0.88 cent, or 1.8 percent, to 47.03 cents a pound on ICE Futures U.S. in New York, the biggest drop for a most-active contract since Nov. 25.

The price has fallen 31 percent this year on concern the global recession is eroding demand for textiles and clothing.

Crude oil in New York dropped more than 9 percent today. Corn fell 4.7 percent in Chicago, wheat dropped 6 percent and soybeans slid 4.2 percent.

Merchants and producers also may have been selling futures today after buying back bales from the government loan program, Barrier said. The federal program allows farmers to take out a 52-cent per pound loan on upland cotton, which can be paid back at a lower rate when market prices are below the loan level.

To contact the reporter on this story: Shruti Date Singh in Chicago at ssingh28@bloomberg.net.