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Aussie heatwave warms sentiment on cotton prices

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The Australian heatwave, which has prompted official meteorologists to add new colours to their weather maps, has underpinned an uptick in sentiment on cotton prices reflecting US dynamics too.

Australia on Monday saw its hottest day in history, with temperatures across the country averaging 40.3 degrees Celsius (105 degrees Fahrenheit), 0.1 degrees higher than the previous record set 30 years ago.

The extent of the heatwave, which saw temperatures in the South Australian town of Oodnadatta hit 48.2 Celsius, has prompted the Australian Bureau of Meteorology to add dark purple and magenta to its colour-coded forecasting maps, representing temperatures of 51 to 54 degrees Celsius, "to better understand what temperatures we might see".

And, on agricultural commodities, it has supported prices of sorghum, which stood at Aus$262.50 a tonne on Wednesday, remaining above its highest levels of the last six months, supported by fears that the heat will harm harvest prospects already diminished by dry spring sowing conditions.

It has also sparked concerns over production of cotton, a commodity in which Australia has been expected to gain second rank among exporting countries in 2012-13.

'

Cotton may suffer'

"Although the wheat-growing areas in the west and south-east of the continent are being affected by the high temperatures, harvesting of the wheat is now largely complete, so no significant negative effect on the quality and quantity of the harvest is likely," Commerzbank said.

"By contrast, the cotton crop may suffer – some cotton is grown in those parts of eastern Australia which are experiencing the heat wave."

Australia's cotton is grown almost exclusively in the eastern states of New South Wales and Queensland.

The US Department of Agriculture - whose world crop estimates are up for revision on Friday in its benchmark Wasde report - currently estimates Australian cotton production in 2012-13 falling 27% to 4.0m bales, with sowings depressed by lower prices.

With high carryover stocks from last season, this would still enough to support exports of 4.2m bales, a figure second only to that of the US.

US exports jump

Indeed, as another support to cotton prices, Commonwealth Bank of Australia's Luke Mathews highlighted strong US export sales data.

"Cumulative US cotton sales over the past four weeks are 408% above year ago levels, supporting the recent firmer tone in global prices," he said.

He also highlighted an estimate by the US Department of Agriculture's New Delhi bureau that the Indian crop looks like coming in at 25.3m bales, 200,000 bales below the official USDA figure.

The lower figure "suggests global supplies will be trimmed" in the USDA's Wasde report, and that "India will only be a small cotton exporter in 2012-13 compared to the past few seasons".

'Considerably less cotton to be planted'

Meanwhile, US production this year may be squeezed by a drop in sowings, as in Australia, prompted by the relatively low price of cotton, down two-third from 2011's record highs, at a time when values of many competitor crops, such as corn and soybeans, remain historically elevated.

US cotton acreage will shrink 16% to 10.3m acres, a survey by Reuters showed.

"Considerably less cotton is likely to be planted in the US in 2013 on account of the low prices," Commerzbank said.

"In the past 26 years, the only times the cotton acreage was any lower was in 2008 and 2009. The acreage cut at that time sparked a massive price rise to over 200 cents per pound until early 2011."

The comments follow an assessment by Macquarie on Monday that "2013 should be the turning point for cotton as supply falls to more manageable levels versus demand".

By Agrimoney.com

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