Cotton futures hit 9-month top on US sowings fears

Futures in new-crop cotton hit a nine-month high after industry experts cautioned that US output of the fibre could plunge to a 30-year low as growers switch to crops offering greater crop prospects.

New York cotton futures for December 2013 delivery rose more than 1% in early deals to 83.84 cents a pound, the contract's highest since May last year.

The increase followed a National Cotton Council forecast that US sowings of the fibre will fall by 27% to 9.02m acres, the lowest since 1983-84.

The harvest itself could fall by up to 44% to 9.5m bales, also the lowest since 1983-84, although that depended on weather - with a breaking of the US drought potentially enabling growers to match the 17m bales they achieved last time.

Gary Adams, the council's vice-president, flagged "particularly" the importance on the harvest outcome of weather in Plains states Kansas and Oklahoma - of which 100% is in drought according to US officials - and in Texas, of which 77% is rated as being in drought.

Cotton vs corn and soybeans

The forecast for the decline in acreage, based on a survey of US farmers, was more than many other commentators had foreseen.

Rabobank, for instance, two weeks ago forecast a drop in plantings to 9.99m acres.

Separately on Monday, the US Department of Agriculture, in preliminary forecasts, pegged US upland cotton sowings, the vast majority of area, at 9.3m acres.

However, Mr Adams said that farmers were being lured by the appeal of other crops, particularly in the Mid-South states such as Arkansas, Mississippi and Tennessee.

He said: "Based on US Department of Agriculture costs of production and trend yields, the shortfall between cotton net returns and returns for corn and soybeans is substantially larger than in 2009 the most recent low in acreage," when plantings dropped to 9.15m acres.

Corn was the most popular alternative, accounting for a little over half the switch in sowings, with the remainder going to soybeans. Much of the soybean has been earmarked for follow-on plantings of "double crop" wheat.

Price performances

Cotton futures, while enjoying a strong start to 2013, were one of the poorest performers in commodities last year, tumbling by 18% in New York, on a front contract basis.

The decline contrasted with a rise of 7% in Chicago corn futures over 2012, and a 20% rise in soybean prices, improving the appeal of both crops to US farmers.

This year's revival in cotton prices has been fostered in part by ideas of weak US sowings, but also by US exports proving more resilient than had been thought in the face of what Mr Adams termed the "40m-bale gorilla that is China's government reserves".

The USDA on Friday cut by 300,000 bales to 4.50m bales its forecast for domestic inventories at the close of 2012-13, citing a raised estimate for exports

China factor

Rabobank said: "The USDA forecasts suggests China's import pace will not fall off, and this is a key supportive factor for old-crop prices.

"In the coming months, old-crop prices will shift on export numbers, while the 2013 planting outlook will impact new-crop prices."

The NCC forecast China's imports in 2012-13 reached 12.5m bales, falling to 6.9m bales next season, but acknowledged the uncertainty over Beijing's handling of its huge reserves.

The USDA, which on Friday raised its forecast for China's cotton imports in 2012-13 to 14.0m bales, sees the country's overall reserves accounting for more than half the world total at the end of the season.

New York's March contract closed up 1.1% at 83.84 cents a pound, with the December lot adding 0.3% to 82.92 cents a pound.

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