Prices had rallied to fresh three-week highs, extending the previous three sessions of gains, driven by a rise in the euro. The gains evaporated in the final hour of trading on tentative selling by producers ahead of the latest US Department of Agriculture crop forecast.
The most-active March contract on ICE Futures US settled down 0.39 cent, or 0.53 percent, at 73.4 cents per lb, just shy of its intraday low of 73.27 cents hit in the final hour of trading. A stronger euro and buying across the broader commodities market had propelled prices to 74.33 cents earlier in the session, its highest level since November 16.
Volumes were below average, with just under 10,000 lots of March traded on the day. While analysts do not expect major changes to last month's report, the data will likely reinforce fears about slack supply-demand fundamentals. Last month the US government predicted global inventory by next July will exceed 80 million bales, which would be the largest supply since records began in 1966.
"Anticipated US cotton fundamentals are likely to loosen incrementally in December, adding more fundamental downside weight to futures prices in the near term," said INTL FCStone analysts said. They predicted an increase in US ending stocks of 200,000 bales, taking the total to 6 million bales due to lower exports.
Sales abroad may slacken without the threat of a ban on exports from India and if the Chinese government starts to auction off some of its massive hoard of fibres, the analysts said. "While season-to-date exports are well ahead of this point last year, we remain concerned that outstanding sales are roughly 40 percent lower than by this point last year," they said.
Earlier this year, foreign mills raced to secure fibres after India, the world's second-biggest producer, imposed a temporary ban on exports. The authorities wanted to protect domestic supplies amid fears of a shortages. The government has said recently it does not expect to have to repeat the measure in 2013 due to plentiful crops. At the same time, rumours have circulated that Beijing may sell a portion of the estimated 30 million-plus bales of cotton held in its strategic stockpile. That would further stiffen competition for business. USDA's domestic production forecast will likely be unchanged at 17.4 million bales and mill consumption level at 3.4 million bales from last month's report, INTL FCStone said.