Cotton’s price rout halts, amid scepticism over huge US upgrade
The retreat in cotton futures slowed to a crawl amid scepticism over a hefty upgrade to the official US crop forecast which sent futures plunging in the last session – and an estimate of hurricane damage totalling 1.4 million bales.
December cotton futures in the last session plunged the exchange limit of 3.0 cents in New York, after the US Department of Agriculture hiked its forecast for the domestic crop by 1.21m bales to 21.8 million bales.
However, on September 12, 2017 the December contract settled down only a further 0.02 cents a pound at 69.09 cents a pound.
The stabilisation came amid growing doubts over the validity of the 21.8m-bale figure, with Louis Rose at Rose Commodity Group flagging “many reasons to be sceptical of the USDA’s latest US production estimate”.
About 1m bales in damage
The questions reflected in part the failure of the data – as highlighted by the USDA itself – to include accurate assessments of damage from hurricanes Harvey and Irma, appraisals of which will be included in updated forecasts next month.
In fact, while market estimates for damage from Harvey, which struck Texas in late August, have shown relatively limited losses, typically of 500000 bales or less, that from Irma, which moved up through Georgia and Alabama earlier this week, could be far greater, some believe.
“Harvey’s path through southern Texas, and on through Louisiana and Mississippi, brought an estimated 400000 bales in damage,” Rabobank said.
“Irma, although still fresh, could bring approximately 1 million bales in damage, predominantly across the Delta and within Georgia,” the second largest cotton-growing state after Texas.
Premiums to widen
The losses would be largely felt in terms of quality, the bank, viewing this as the “primary concern this season. “As a consequence, we anticipate higher-quality fibre premiums to widen.”
Nonetheless, a forecast by the bank of US stocks of about 5 million bales at the close of 2017-18, while showing inventories rising “heavily” from the 2.75 million bales and the start of the season, implied substantial scope for volume losses.
The USDA on September 12, 2017, raised its forecast for season-end inventories to 6.0 million bales.
In Georgia itself, Ron Lee, at McClesky Cotton, said that there was “still a great deal of uncertainty of the impact” of Irma on cotton crops.
Still, even in south east Georgia, where the merchant is based – and which escaped relatively lightly from Irma, receiving less than 3 inches of rain – “in most every field you ride by, the cotton is twisted and the stalk is pushed toward the ground”, Mr Lee said. “I have no doubt that the damage is worse to the south and east of us where rainfall totals were between 6-10 inches.”
One of the concerns for Georgia farmers is that the storm struck as roughly one-half of the crop was opening bolls, a developmental stage vulnerable to weather damage.
Many questions raised
Even excluding hurricane talk, Rose flagged reasons to question the USDA assessments, and an upgrade to a record 908 pounds per acre in the forecast for the average US cotton yield this year. “There have been many questions raised regarding the USDA’s domestic projection figure,” Rose said. “We certainly agree that the strong yield enhancements do not correlate with producer and consultant reports that we have gleaned. Nor do they coincide with our own field observations,” a discrepancy “particularly true within the Mid-south”.
Indeed, Rose questioned the evidence for some of the state upgrades, saying that “it should be recalled, too, that the USDA does not make field assessments in many of the areas where yield expectations were notably enhanced”.
Rose added that cotton prices looked likely now to find resistance to price moves above US 70-71 cents a pound, while finding support at a little over 65.50 cents a pound.
However, market performance also “now likely relies on finding a level at which fresh US export business and on-call fixations can be accomplished en masse”.