Prospects for cotton prices may not be as downbeat as some
commentators believe, analyst Judith Ganes-Chase said – despite acknowledging that
this year US harvest could exceed official forecasts.
Ms Ganes-Chase acknowledged the pressures on cotton prices
from raised production forecasts for 2017-18, with the US Department of
Agriculture on Friday raising its estimate for the world harvest by 1.5m bales
to 114.7m bales – a jump in output of 8.7m bales year on year.
"The season ahead will start off with a bearish posture
given the potential for increased plantings in response to better prices" that have
reigned for much of 2017.
US farmers, expected by the USDA to raise output by 2.0m
bales to a 10-year high of 19.2m bales this year, "are not the only ones with
intent to plant more cotton and increase production," said Ms Ganes-Chase, head
of J Ganes Consulting.
Other major growers, such as China, Pakistan and India,
where monsoon rains have got off to a good start, are also seen raising output.
And the US harvest could well exceed official expectations,
"USDA may have understated the size of the US cotton crop if
weather stays favourable as the figures were based on average abandonment and
yields," and both results could turn out better than expected.
'Sing a different
However, investors, who on Tuesday drove New York cotton futures
to their lowest since January, are "considering the worst-case posture", Ms
"The market is pricing in a fairly bearish perspective and
with that comes opportunity."
Although concurring with ideas that cotton prices may yet
fall, flagging in particular the pressure on values as harvests boost world
supplies, "thereafter, I would sing a different tune and moderate bearish views".
Indeed, cotton supply and demand fundamentals are "actually
less bearish than they were in March", when the USDA underlined expectations of
a rise in US cotton sowings this year, forecasting a rise of 1.16m acres to 12.23m
acres in plantings.
The US balance sheet at the time included an expectation of
a rise in US cotton inventories over 2016-17 which is no longer expected,
thanks to strong exports.
US inventories are now forecast falling by 600,000 bales this
season to 3.2m bales.
'Now, with [2016-17] ending stocks slashed, the increase in
supply [in 2917-18] won't seem as monumental."
Furthermore, the USDA may have proven too hasty last week in
cutting by 500,000 bales, to 13.5m bales, its forecast for US exports in
"If the quality of the 2017 crop is excellent, then exports
will likely exceed the current view as well preventing a large stock build," Ms
Ganes-Chase said, terming the USDA export forecast "conservative".
Many other commentators have issued cautions over cotton
price prospects, with Dr John Robinson, cotton marketing expert at Texas
A&M University warning of a "lot of downside price risk" in the market,
while Rabobank termed Friday's USDA data "bearish".
Tobin Gorey, at Commonwealth Bank of Australia, on Wednesday
restated caution over cotton futures, which closed the last session at
four-month lows, for both July delivery and the new crop December contract.
The contracts also came close to falling below their 200-day
moving averages, a key technical pointer.
"Cotton futures are ploughing through multiple sell trigger
levels very quickly – the consequence of having gone nowhere new for months,"
said Mr Gorey.
"The forecast fundamentals have been in place for some time
for lower prices. Fireworks might still be ahead."
However, Louis Rose at Rose Commodity Group has taken a more
mixed view of the USDA data, underlining that they show growth in consumption
as well as production.
Furthermore, he flagged some caution over a USDA assessment,
in weekly data on Monday, that 66% of the US cotton crop is in "good" or "excellent"
"Crop condition ratings continue to seem higher than reports
we receive from people with 'boots on the ground' across major US producing
regions," Mr Rose said.
"One of our Texas contacts relays that loss of non-irrigated
acreage that has been planted, but has yet to emerge, could be significant."