Cotton futures soar

Cotton futures soar

Cotton futures soared, contrasting with a somewhat muted session for other agricultural markets, after the US issued a surprise downgrade to expectations of domestic supplies, citing improved export expectations

New York cotton futures for December closed 2.7 % higher at 68.97 cents a pound, surging up through a series of moving averages, including the 40-day, 50-day and 100-day lines

The gains followed a cut by the US Department of Agriculture of 600000 bales, to 4.30 million bales, in its forecast for domestic cotton inventories at the close of 2016-17, next July.

The downgrade caught off-guard a market which had expected only a marginal, 30000-bale cut to the stocks estimate.

Ending stocks down sharply

The USDA said its downgrade was in part due a lower harvest estimate, “reduced 108000 bales, mainly in Texas”, and which has the potential for further decline once damage from Hurricane Matthew in eastern states is factored in.

Overnight, agricultural officials in South Carolina said that “early estimates indicate a significant loss of the cotton crop” in the state.

However, the main driver of the reduced US inventory estimate was an increased idea of exports, raised by 500000 bales to 12.0 million bales or 2016-17, “due mainly to higher world import demand”.

“US production is down slightly, coupled with higher exports, ending stocks down sharply,” the USDA said, attributing the improved trade hopes in part to increased ideas of Bangladeshi demand.

“Estimates and forecasts for Bangladesh consumption and imports have been revised substantially upward this month as more detailed 2015-16 data has become available,” the USDA US Department of Agriculture said.

The estimate for Bangladeshi cotton consumption for 2016-17 was raised by 400000 bales to 6.3 million bales, increasing the country’s grip on the title of top importer of the fibre, ahead of Vietnam on 4.8 million bales.

Demand previously underestimated

At a global level, the USDA cut again its estimate for world cotton stocks at the close of 2016-17, this time by 2.46 million bales to 87.35 million bales – a figure which would represent a drop of more than 24 million bales over two seasons.

Besides the downgrade to the US inventory estimate, the USDA also flagged upgrades to historical figures on Chinese consumption, with the strong appetite for cotton sold in the recent state auction process a key factor in the revision.

“The sale of more than 12 million bales from China’s recently completed reserve auctions amid rising domestic prices suggests the China mill demand was previously underestimated,” the USDA said.

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