NY cotton drops near 2-year low on bumper supplies

* Market plumbs lowest level since July 2010
* Cotton trading at levels before historic 2010/11 rally
* Fiber contracts oversold, but market bears to press lower

NEW YORK, May 11 (Reuters) - Cotton futures fell on Friday,
finishing near a two-year low for the second straight session as
bumper supplies encouraged selling by speculators who expect
prices to stay under pressure over the next several weeks,
analysts said.
July cotton on the ICE Futures U.S. exchange slid
2.85 cents or by nearly 3.5 percent to finish at 78.97 cents per
lb, trading from 77.16 to 81.76 cents.
It was the lowest close for the spot contract since July
2010, according to Thomson Reuters data. (Graphic: link.reuters.com/gaq28s)
"We're looking at a nightmare scenario," said Mike Stevens,
an independent cotton analyst in Mandeville, Louisiana.
New-crop December lost 3.03 cents to end at 76.34
cents, moving from 74.46 to 79.17 cents.
The market has been reeling after the U.S. Agriculture
Department's monthly crop report forecast world 2012/13 cotton
ending stocks at a record 73.75 million (480-lb) bales, up over
10 percent from the 2011/12 level.
Cotton is now trading at levels last seen before the
historic rally that began in 2010 sent prices to a record peak
of $2.27 in March 2011. That price, which topped even the price
that cotton fetched during the U.S. Civil War, spurred a sharp
rise in plantings around the world.
Friday's estimated volume was nearly 40,700 lots, more than
two-thirds above the 30-day norm, according to Thomson Reuters
data. It is the biggest daily volume traded since April 18, ICE
Futures U.S. data showed.
A total of 28.05 million bales is in China, accounting for
nearly 40 percent of total world supplies.
Cotton futures are already oversold with a technical
strength reading of 25. A reading of 30 or below means a market
is oversold. But this will matter little to investors who see an
oversupplied market, analysts said.
"This market's going to be on the defensive for a long
time," said Stevens.
Traders said many U.S. farmers who did not price or sell
their cotton when futures were trading above 90 cents a lb are
probably scrambling to sell their crop now.
USDA said in its report that American farmers will get
squeezed in the upcoming 2012/13 season.
"The forecast range for the marketing-year average price
received by producers is 65 to 85 cents per pound, compared with
91.0 cents estimated for 2011/12," it said.
Open interest rose for the fifth session running and stood
at 188,296 lots as of May 10, ICE Futures U.S. exchange data
showed.

(Reporting by Rene Pastor; Editing by David Gregorio)