The retreat in cotton futures slowed to a crawl amid scepticism
over a hefty upgrade to the official US crop forecast which sent futures
plunging in the last session – and an estimate of hurricane damage totalling
December cotton futures in the last session plunged the exchange
limit of 3.0 cents in New York, after the US Department of Agriculture hiked its
forecast for the domestic crop by 1.21m bales to 21.8m bales.
However, on Tuesday, the December contract
settled down only a further 0.02 cents a pound at 69.09 cents a
The stabilisation came amid growing doubts over the validity
of the 21.8m-bale figure, with Louis Rose at Rose Commodity Group flagging "many
reasons to be sceptical of the USDA's latest US production estimate".
'About 1m bales in
The questions reflected in part the failure of the data – as
highlighted by the USDA itself - to include accurate assessments of damage from
hurricanes Harvey and Irma, appraisals of which will be included in updated forecasts
In fact, while market estimates for damage from Harvey, which
struck Texas in late August, have shown relatively limited losses, typically of
500,000 bales or less, that from Irma, which moved up through Georgia and Alabama
earlier this week, could be far greater, some believe.
"Harvey's path through southern Texas, and on through
Louisiana and Mississippi, brought an estimated 400,000 bales in damage,"
"Irma, although still fresh, could bring approximately 1m
bales in damage, predominantly across the Delta and within Georgia," the second
largest cotton-growing state after Texas.
'Premiums to widen'
The losses would be largely felt in terms of quality, the
bank, viewing this as the "primary concern this season.
"As a consequence, we anticipate higher-quality fibre
premiums to widen."
Nonetheless, a forecast by the bank of US stocks of about 5m
bales at the close of 2017-18, while showing inventories rising "heavily" from
the 2.75m bales and the start of the season, implied substantial scope for
The USDA on Tuesday raised its forecast for season-end
inventories to 6.0m bales.
In Georgia itself, Ron Lee, at McClesky Cotton, said that
there was "still a great deal of uncertainty of the impact" of Irma on cotton
Still, even in south east Georgia, where the merchant is
based - and which escaped relatively lightly from Irma, receiving less than 3
inches of rain – "in most every field you ride by, the cotton is twisted and
the stalk is pushed toward the ground", Mr Lee said.
"I have no doubt that the damage is worse to the south and
east of us where rainfall totals were between 6-10 inches."
One of the concerns for Georgia farmers is that the storm
struck as roughly one-half of the crop was opening bolls, a developmental stage
vulnerable to weather damage.
Even excluding hurricane talk, Mr Rose flagged reasons to question
the USDA assessments, and an upgrade to a record 908 pounds per acre in the
forecast for the average US cotton yield this year.
"There have been many questions raised regarding the USDA's
domestic projection figure," Mr Rose said.
"We certainly agree
that the strong yield enhancements do not correlate with producer and
consultant reports that we have gleaned.
"Nor do they coincide with our own field observations," a
discrepancy "particularly true within the Mid-south".
Indeed, Mr Rose questioned the evidence for some of the
state upgrades, saying that "it should be recalled, too, that the USDA does not
make field assessments in many of the areas where yield expectations were
Mr Rose added that cotton prices looked likely now to find
resistance to price moves above 70-71 cents a pound, while finding support at a
little over 65.50 cents a pound.
However, market performance also "now likely relies on
finding a level at which fresh US export business and on-call fixations can be
accomplished en masse".