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AM markets: cotton market cools as Hurricane Irma loses pace

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Hurricane Irma may be bringing misery for millions of Americans, but for


production prospects, it does not look like worst fears are likely to be realised.

December cotton futures, having hit a contract high in the last session, found reverse gear in this one, tumbling 2.6% to 72.66 cents a pound as of 09:50 UK time (03:50 Chicago time).

It is not that Irma will not hit some major cotton-producing areas of the US, but it is expected to decrease sharply in intensity as it travels up through the country, from Florida through Georgia, Alabama and northern Mississippi.

According to the US National Hurricane Center, Irma winds will slow to below 73mph through Georgia, and fall below 39mph over Alabama.

'Will weaken substantially'

"Irma will weaken substantially over the next day or so – when it will reach Georgia's cotton crop," said Tobin Gorey at Commonwealth Bank of Australia.

"Irma is indeed likely to be a mere storm, rather, than a hurricane, by that time," Mr Gorey said, if adding that Georgia's cotton crop "is nonetheless at risk, though from heavy rain rather than high winds".

"We'd expect that almost half of Georgia's cotton to have opened bolls by now.

"Open bolls and heavy rainfall are a bad combination because it can damage the lint."

'Opportunity to price cotton'

Still, there are commentators who believe current prices represent an opportunity for growers to sell, with US hurricane losses, in volume terms, not likely to come in too large compared with a crop which had been expected above 20m bales.

At Texas A&M University, Dr John Robinson, cotton marketing expert, restated that growers "should be poised and ready to… protect themselves from sudden sell-offs".

Louis Rose at Rose Commodity Group said that "there are still a handful of producers who continue to avoid pricing their crop.

"While we see the possibility of further gains in both futures and the basis, we cannot state strongly enough that two hurricanes have given these producers yet another opportunity to price cotton.

"Take advantage of this opportunity and start the week with orders in place on a portion of your crop."

The one caveat of this bearish outlook, from current values, is that quality may earn extra premium, with Mr Rose flagging that "premium middlings are likely to be more scarce than they usually are as the early harvest season progresses".

Palm data

Another market in particular focus in early deals was

palm oil

, after the Malaysian Palm Oil Board unveiled data showing that Malaysia's inventories of the vegetable oil rose, but remained below the 2.0m-tonne level that some investors had feared.

Indeed, the data showed unexpectedly strong exports last month, at 1.49m tonnes, nearly 70,000 tonnes above investor forecasts.

Although production, at 1.81m tonnes, was ahead of expectations too, it was by a more modest 10,000 tonnes.

Palm oil futures for November added 1.6% to 2,806 ringgit a tonne in Kuala Lumpur.

Soyoil gains

That helped futures in rival vegetable oil


revive a bit too in Chicago, by 0.5% to 35.12 cents a pound for December delivery, reversing some of the losses of the last session, on ideas that US measures taken against Argentine imports of biodiesel may not be so severe after all.

(Biodiesel is made from vegetable oils, and in the case of the US, and Argentina, largely from soyoil.)

Terry Reilly at Futures International flagged that "Argentina and the US are in new negotiations to revise biofuel import tariffs."

"Details are lacking but bearish enough to pull soybean oil prices lower" in the last session.

Data ahead



themselves were higher too, adding 0.2% to $9.74 a bushel for November delivery, although investors are more concerned with data later in the week.

Tuesday will see the release of the US Department of Agriculture's much-watched monthly Wasde world crop supply and demand report, besides a monthly briefing on Brazilian crops from Conab too.

According to a market survey, the Wasde is expected to trim the estimate for the US soybean yield by 0.6 bushels per acre to 48.8 bushels per acre.

The impact on carryout stocks for 2017-18 will be a 33m-bushel downgrade to 442m bushels.

Yield debate

But how to reconcile a yield even this high with weekly USDA crop condition data (of which the next set will be out this evening) showing a crop in notably worse health than a year ago.

"Their current estimate is out of line with crop conditions," said Water Street Solutions, noting "several comments about fewer beans per pod and dry weather bringing smaller beans".

"Any threat of sub-47 bushels per acre would send the market higher considering the Chinese demand structure," and the country's growing import needs.

Indeed Futures International's Terry Reilly said that "on our analysis, China cash soybean crush margins were running at positive $0.92 a bushel" late last week, versus $0.96 a week before and 46 cents as of late 2016.

However, he forecast a soybean yield estimate in the Wasde of 49.8 bushels per acre, ie an upgrade of 0.4 bushels per acre, noting that the USDA figure will be based on a farm survey made at a time of rising US crop condition figures.

"The USDA surveyed during the last 15 days of August, when yields appeared to improve from late July and early August," Mr Reilly said.

'The wild card'



, a similar debate is going on.

"The wild card is the ear weight that was used in the August Wasde report, which as the third highest on record," said Water Street Solutions.

"With actual field data in the September report, any revision down in ear weight, coupled with the lower than recent history populations would move the yield estimate lower."

Still, with corn crops less vulnerable that soybeans to recent Midwest dryness, given that the grain is further along in its development, corn futures for December eased by 0.3% to $3.55 ¾ a bushel.

The Wasde is actually expected to trim the US corn yield estimate by 1.3 bushels per acre, to 168.2 bushels per acre.

'Russia's supplies keep growing'

Rival grain wheat was hardly a help to corn either, in dropping 0.9% to $4.34 a bushel for December delivery, remaining under pressure from the huge Russian harvest.

"Russia's grain supplies keep growing," Mr Reilly said, flagging SovEcon's upgrade on Friday of 2.2m tonnes to 81.1m tonnes in its forecast for the country's wheat harvest.

Still, there remain worries over the country's ability to export much more than 30m tonnes of that, besides in Australia and Ukraine over dryness too.

Benson Quinn Commodities flagged "concerns that dryness effecting large areas of Ukraine will not be remedied by optimal winter wheat planting time".

'Seasonal price bottom'

Indeed, Water Street Solutions said that the "seasonal bottom should have been scored last week" in wheat prices, foreseeing the prospect of a yet-further decline in US winter wheat area, sowing of which began in earnest last week.

"Look for the US production area for 2018 to drop below last year's century low number.

"Patience should be rewarded in wheat."

By Mike Verdin

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