(Bloomberg) -- Hedge funds made a record bearish bet on cotton just before prices extended declines to hit a three-year low.

Futures traded in New York dropped to 62.6 cents a pound on Friday, the lowest since June 2016. Just three days earlier, money managers expanded their net wagers on price declines. It was the third straight week the bearish position reached a fresh record.

The market is suffering from a serious supply overhang. U.S. inventories are projected to reach a 12-year high in the 2019-2020 season. Meanwhile, American shipments are still facing tariffs from China, the world’s top consumer. Even big delays for this year’s plantings and the threat of Tropical Storm Barry, which is forecast to dump heavy rain across growing areas in the Mississippi Delta, hasn’t been enough to rescue prices from their doldrums.

“I don’t see why the specs would turn around,” said Peter Egli, a director of risk management at Plexus Cotton. There are “a lot of strikes against cotton,” he said.

Cotton is down almost 30% in the past 12 months and is among the worst performer in the Bloomberg Commodity Index, which tracks returns for 22 components. Slower global economic growth has eroded demand. The U.S. Department of Agriculture on Thursday cut its 2019-2020 projection for world use by 0.8% and boosted its outlook for global inventory by 4.1%.

In the week ended July 9, the investors’ net-short position expanded 11% to 41,727 futures and options, according to U.S. Commodity Futures Trading Commission data published Friday. The holding, which measures the difference between bets on a price increase and wagers on a decline, was the most bearish since the data begins in 2006.

The short-only holdings jumped 6.4% to an all-time high of 72,095 contracts.

Even as inventories pile up, there’s still plenty that can go wrong with this year’s crop, and that could quickly undercut the negative sentiment.

Planting delays have stunted normal development. Only 47% of U.S. crops had reached the so-called squaring stage, the growth period prior to blooming, as of July 7, USDA data show. That’s down 10 percentage points from last year and trails the five-year average. In Texas, the biggest grower, the figure was 11 percentage points behind last season.

Meanwhile, fields in southern portions of the Mississippi Delta region could be badly affected by Barry. The storm is forecast to come ashore along the Louisiana coast as a hurricane early Saturday, unleashing as much as 25 inches (64 centimeters) of rain. It could be several days after that before the extent of the damage to plants is known.

--With assistance from Kevin Varley.

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

To contact the editors responsible for this story: James Attwood at jattwood3@bloomberg.net, Millie Munshi

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