Hurricane Irma may be bringing misery for millions of
Americans, but for cotton production
prospects, it does not look like worst fears are likely to be realised.
December cotton futures, having hit a contract high in the
last session, found reverse gear in this one, tumbling 2.6% to 72.66 cents a pound
as of 09:50 UK time (03:50 Chicago time).
It is not that Irma will not hit some major cotton-producing
areas of the US, but it is expected to decrease sharply in intensity as it
travels up through the country, from Florida through Georgia, Alabama and
According to the US National Hurricane Center, Irma winds
will slow to below 73mph through Georgia, and fall below 39mph over Alabama.
"Irma will weaken substantially over the next day or so –
when it will reach Georgia's cotton crop," said Tobin Gorey at Commonwealth
Bank of Australia.
"Irma is indeed likely to be a mere storm, rather, than a
hurricane, by that time," Mr Gorey said, if adding that Georgia's cotton crop "is
nonetheless at risk, though from heavy rain rather than high winds".
"We'd expect that almost half of Georgia's cotton to have
opened bolls by now.
"Open bolls and heavy rainfall are a bad combination because
it can damage the lint."
'Opportunity to price
Still, there are commentators who believe current prices
represent an opportunity for growers to sell, with US hurricane losses, in
volume terms, not likely to come in too large compared with a crop which had
been expected above 20m bales.
At Texas A&M University, Dr John Robinson, cotton
marketing expert, restated that growers "should be poised and ready to… protect
themselves from sudden sell-offs".
Louis Rose at Rose Commodity Group said that "there are
still a handful of producers who continue to avoid pricing their crop.
"While we see the possibility of further gains in both
futures and the basis, we cannot state strongly enough that two hurricanes have
given these producers yet another opportunity to price cotton.
"Take advantage of this opportunity and start the week with
orders in place on a portion of your crop."
The one caveat of this bearish outlook, from current values,
is that quality may earn extra premium, with Mr Rose flagging that "premium
middlings are likely to be more scarce than they usually are as the early
harvest season progresses".
Another market in particular focus in early deals was palm oil, after the Malaysian Palm Oil
Board unveiled data showing that Malaysia's inventories of the vegetable oil
rose, but remained below the 2.0m-tonne level that some investors had feared.
Indeed, the data showed unexpectedly strong exports last
month, at 1.49m tonnes, nearly 70,000 tonnes above investor forecasts.
Although production, at 1.81m tonnes, was ahead of
expectations too, it was by a more modest 10,000 tonnes.
Palm oil futures for November added 1.6% to 2,806 ringgit a
tonne in Kuala Lumpur.
That helped futures in rival vegetable oil soyoil revive a bit too in Chicago, by 0.5%
to 35.12 cents a pound for December delivery, reversing some of the losses of
the last session, on ideas that US measures taken against Argentine imports of
biodiesel may not be so severe after all.
(Biodiesel is made from vegetable oils, and in the case of the
US, and Argentina, largely from soyoil.)
Terry Reilly at Futures International flagged that "Argentina
and the US are in new negotiations to revise biofuel import tariffs."
"Details are lacking but bearish enough to pull soybean oil
prices lower" in the last session.
themselves were higher too, adding 0.2% to $9.74 a bushel for November
delivery, although investors are more concerned with data later in the week.
Tuesday will see the release of the US Department of
Agriculture's much-watched monthly Wasde world crop supply and demand report, besides
a monthly briefing on Brazilian crops from Conab too.
According to a market survey, the Wasde is expected to trim
the estimate for the US soybean yield by 0.6 bushels per acre to 48.8 bushels
The impact on carryout stocks for 2017-18 will be a
33m-bushel downgrade to 442m bushels.
But how to reconcile a yield even this high with weekly USDA
crop condition data (of which the next set will be out this evening) showing a
crop in notably worse health than a year ago.
"Their current estimate is out of line with crop conditions,"
said Water Street Solutions, noting "several comments about fewer beans per pod
and dry weather bringing smaller beans".
"Any threat of sub-47 bushels per acre would send the market
higher considering the Chinese demand structure," and the country's growing
Indeed Futures International's Terry Reilly said that "on
our analysis, China cash soybean crush margins were running at positive $0.92 a
bushel" late last week, versus $0.96 a week before and 46 cents as of late
However, he forecast a soybean yield estimate in the Wasde
of 49.8 bushels per acre, ie an upgrade of 0.4 bushels per acre, noting that
the USDA figure will be based on a farm survey made at a time of rising US crop
"The USDA surveyed during the last 15 days of August, when
yields appeared to improve from late July and early August," Mr Reilly said.
'The wild card'
For corn, a
similar debate is going on.
"The wild card is the ear weight that was used in the August
Wasde report, which as the third highest on record," said Water Street Solutions.
"With actual field data in the September report, any
revision down in ear weight, coupled with the lower than recent history
populations would move the yield estimate lower."
Still, with corn crops less vulnerable that soybeans to
recent Midwest dryness, given that the grain is further along in its
development, corn futures for December eased by 0.3% to $3.55 ¾ a bushel.
The Wasde is actually expected to trim the US corn yield
estimate by 1.3 bushels per acre, to 168.2 bushels per acre.
Rival grain wheat was hardly a help to corn either, in
dropping 0.9% to $4.34 a bushel for December delivery, remaining under pressure
from the huge Russian harvest.
"Russia's grain supplies keep growing," Mr Reilly said,
flagging SovEcon's upgrade on Friday of 2.2m tonnes to 81.1m tonnes in its forecast
for the country's wheat harvest.
Still, there remain worries over the country's ability to
export much more than 30m tonnes of that, besides in Australia and Ukraine over
Benson Quinn Commodities flagged "concerns that dryness
effecting large areas of Ukraine will not be remedied by optimal winter wheat
Indeed, Water Street Solutions said that the "seasonal
bottom should have been scored last week" in wheat prices, foreseeing the prospect
of a yet-further decline in US winter wheat area, sowing of which began in
earnest last week.
"Look for the US production area for 2018 to drop below last
year's century low number.
"Patience should be rewarded in wheat."