Analysts offered hope to battered cotton bulls, with
Commerzbank nudging higher its forecast for futures, citing the threats to
production from the southern US drought, Chinese reforms and, potentially, El
Commerzbank acknowledged the threats to cotton prices from "softer
demand" from China, the top consumer and importer, and from the prospect of
some inventory rebuild in the US, the biggest exporter.
Indeed, it forecast prices averaging 78 cents a pound in the
October-to-December period, when new crop northern hemisphere supplies come
onstream, compared with 89 cents a pound expected in the current quarter, when
the US is relying on thin stocks left over from the last harvest.
However, the fourth-quarter forecast represented an upgrade
of 4 cents a pound from its previous outlook, with the estimate for prices in
the January-to-March quarter also raised by 4 cents, to 76 cents a pound.
The improved outlook reflected "several downside risks" to
production hopes, including the drought in Texas, the top US producing state, the bank said.
The US Department of Agriculture forecast of 24% of domestic
cotton sowings being abandoned "is much more than on average of the past 15
years", if below the 2011 record above 35%.
Although rains over the past week are believed to have eased
the Texas drought, high rainfall itself could yet prove a problem, Commerzbank
added, noting the prospect of an El Nino weather pattern,
"The weather phenomenon El Niño could cause additional
harvest losses because it goes hand in hand with above-average rainfall in the
south of the US during the harvest period."
Meanwhile, Chinese output will drop, a reflection of subsidy
reforms which are handing payouts only to growers in Xinjiang, the country's top
The cotton price "should remain elevated until the new harvest
comes to the market," Commerzbank said.
"For this reason we forecast a price of about 85 cents per
pound until autumn."
Then rising US stocks, and softened Chinese demand, "suggest
that the price will decline to 78 cents per pound by year-end", likely falling
below that in 2015, unless an El Nino causes significant disruption.
"Should the drought or El Nino cause massive harvest losses
in the US, 80 cents per pound ought to mark the lower end of the range for the
The forecasts imply that the worst may be over for the retreat
in cotton prices fuelled by Texas rains, which have improved conditions for US
sowings of spring crops.
Indeed, new crop December cotton edged 0.1% higher to 77.78
cents a pound in New York as of 06:40 local time (11:40 UK time) – taking aim
at what would be a first positive close in 13 sessions, during which it has
The contract on Wednesday touched 77.00 cents a pound, a
Old crop July cotton stood 0.2% higher at 85.06 cents a
The prospect that the cotton correction may have run its
course for now also received support from Citigroup analyst Sterling Smith, who
said that "the improved weather and better planting conditions look to be
priced in at this point.
"The crop in west Texas will need to see better follow-up precipitation,
or the improved starting conditions will likely go for naught."
At Price Futures, Jack Scoville said that "it is now more
possible for the US to have a good to very good crop this year, although there
is still the growing season in front that will need to feature continued very