A hefty Washington estimate for world cotton stocks, which fuelled
a slump in prices last week, looks like being undermined by weaker prospects
for Australian exports, besides large hurricane losses to the US's own crop.
The US Department of Agriculture surprised investors last
week by raising by 2.46m bales to 92.5m bales its forecast for world cotton inventories
at the close of 2017-18 - an upgrade based on higher production forecasts for countries
including Australia and, in particular, the US itself.
The data spurred a limit-down close to New York cotton
futures on the day.
However, it now appeared that there had been significant
damage to the US crop from the recent hurricanes, Harvey and Irma, and which
the USDA has not included in its domestic production forecasts.
US output downgrade
"Initial estimates suggest that roughly 1.5m bales of cotton
fell victim to the recent storms in the US," said Commerzbank.
Rabobank has estimated that Harvey "brought an estimated
400,000 bales in damage", with Irma causing crop "damage" equivalent to about
Commerzbank said that the 2017-18 US crop could now "total
around 20m bales", a 10-year high, but below the 21.8m-bale harvest that the USDA
is currently forecasting.
"This would no longer constitute a year-on-year increase of
27%, as the US Department of Agriculture predicted, but of 'only' 16%," the
Furthermore, Commezbank flagged a downgrade by Abares, the
official Australian commodities bureau, of 127,000 tonnes (583,000 bales) to 956,000
tonnes (4.39m tonnes) to its forecast for the country's cotton exports in
"Because Australia exports by far the lion's share of its
cotton, the country is one of the biggest cotton suppliers on the world market,"
the bank said.
With US and Australian supplies weaker, the 11.9m-bale build
in world cotton inventories, outside China, that the USDA forecast last week "could
therefore turn out to be somewhat smaller".
Abares overnight, in a quarterly report, restated its
estimate of a 956,000-tonne cotton harvest, while cutting by 63,000 tonnes to 935,000
tonnes its forecast for Australia's cotton exports in 2017-18.
The bureau also cut by 3.0 cents a pound to 80.0 cents a
pound its forecast for world cotton prices this season, as measured by the
Cotlook A index of physical values.
The downgrade - which put the forecast price below the 82.7
cents a pound averaged for 2016-17, on an August-to-July basis – was "due to
world, excluding China, production increasing faster than previously expected",
Nonetheless, the forecast remains a little above the current
Cotlook A price, of 78.90 cents a pound.
The index reached a high of 84.70 cents a pound on September
The Abares forecast is also well above the 69 cents a pound
at which the ICAC sees Cotlook A values averaging in 2017-18.