Cotton futures plunged limit down
after the US hiked expectations for the domestic output of the fibre – defying
some expectations of a downgrade – lifting the forecast for Chinese output too.
The US Department of Agriculture, in
its much-watched monthly Wasde report on world cop supply and demand hiked by
1.5m bales to an 11-year high of 20.5m bales its forecast for the domestic
cotton harvest this year.
Officials acknowledged some setbacks
to crops, notably in the top growing state of Texas, where "hot
temperatures, high winds, and hail storms caused stress and damage to some
fields across the southern High Plains and the northern Low Plains" last
However, the USDA said that the
upgrade was warranted by the season's first field-based assessment of US output
prospects, with previous estimates based solely on factors such as weather and
crop condition ratings.
The estimate for this year's cotton
yield was hiked by 76 pounds per acre to 892 pounds per acre, matching the
record high set in 2012.
The upgrade caught out investors – many
of whom had forecast a cut to the US harvest estimate.
Wasde 2017-18 cotton data, change on previous, (on market forecast)
US carryout stocks: 5.80m bales, +500,000 bales, (+1.0m bales)
World carryout stocks: 90.09m bales, +1.36m bales, (+1.7m bales)
Sources: USDA, Agrimoney.com, Reuters
Jack Scoville at broker Price Futures
said ahead of the briefing that "the market thinks USDA could cut
production estimates slightly due to earlier stressful weather".
The trade "also notes very good
demand" for US cotton, he added.
The USDA indeed lifted its forecasts
for US cotton exports in 2016-17 by 420,000 bales to 14.9m bales, and for
newly-started 2017-18 by 700,000 bales to 14.2m bales.
Even so, the extra production fed
through into expectations of US cotton stocks ending this season at 5.80m
bales, a nine-year high.
Analysts had, ahead of the report, on
average forecast a downgrade in the inventory figure, to 4.80m bales.
The USDA also raised its estimate for
Chinese production, by 1.5m bales to 24.5m bales (5.33m tonnes), although this
was less of a surprise to the market, after Beijing itself lifted its forecast
for the crop earlier on Thursday by 180,000 tonnes to 5.28m tonnes.
Both Beijing and Washington officials
flagged higher-than-expected Chinese cotton seedings, with the USDA saying that
"official reports from China indicate a moderate increase in the area
planted to cotton, specifically in Xinjiang and Hebei provinces, which
benefited from favourable weather conditions".
While Chinese cotton area had declined
"for the past five seasons… in all cotton regions", as farmers
responded to subsidy changes which cut the financial appear of growing the
fibre, sowings had been encouraged this year by "higher cotton
"Since the season began in April,
most major cotton-growing regions have received normal to above-average
rainfall," the USDA added.
In New York, December cotton futures,
the best-traded contract, plunged to 68.11 cents a pound – trading down the
maximum 5.0 cents a pound allowed by exchange rules.
The contract in late deals stood just
about that level, at 68.12 cents a pound, a drop of 4.2% on the day.