Cotton futures plunged limit down after the US hiked expectations for the domestic output of the fibre – defying some expectations of a downgrade – lifting the forecast for Chinese output too.
The US Department of Agriculture, in its much-watched monthly Wasde report on world cop supply and demand hiked by 1.5m bales to an 11-year high of 20.5m bales its forecast for the domestic cotton harvest this year.
Officials acknowledged some setbacks to crops, notably in the top growing state of Texas, where "hot temperatures, high winds, and hail storms caused stress and damage to some fields across the southern High Plains and the northern Low Plains" last month.
However, the USDA said that the upgrade was warranted by the season's first field-based assessment of US output prospects, with previous estimates based solely on factors such as weather and crop condition ratings.
The estimate for this year's cotton yield was hiked by 76 pounds per acre to 892 pounds per acre, matching the record high set in 2012.
The upgrade caught out investors – many of whom had forecast a cut to the US harvest estimate.
Wasde 2017-18 cotton data, change on previous, (on market forecast)
US carryout stocks: 5.80m bales, +500,000 bales, (+1.0m bales)
World carryout stocks: 90.09m bales, +1.36m bales, (+1.7m bales)
Sources: USDA, Agrimoney.com, Reuters
The trade "also notes very good demand" for US cotton, he added.
The USDA indeed lifted its forecasts for US cotton exports in 2016-17 by 420,000 bales to 14.9m bales, and for newly-started 2017-18 by 700,000 bales to 14.2m bales.
Even so, the extra production fed through into expectations of US cotton stocks ending this season at 5.80m bales, a nine-year high.
Analysts had, ahead of the report, on average forecast a downgrade in the inventory figure, to 4.80m bales.
The USDA also raised its estimate for Chinese production, by 1.5m bales to 24.5m bales (5.33m tonnes), although this was less of a surprise to the market, after Beijing itself lifted its forecast for the crop earlier on Thursday by 180,000 tonnes to 5.28m tonnes.
Both Beijing and Washington officials flagged higher-than-expected Chinese cotton seedings, with the USDA saying that "official reports from China indicate a moderate increase in the area planted to cotton, specifically in Xinjiang and Hebei provinces, which benefited from favourable weather conditions".
While Chinese cotton area had declined "for the past five seasons… in all cotton regions", as farmers responded to subsidy changes which cut the financial appear of growing the fibre, sowings had been encouraged this year by "higher cotton profitability".
"Since the season began in April, most major cotton-growing regions have received normal to above-average rainfall," the USDA added.
In New York, December cotton futures, the best-traded contract, plunged to 68.11 cents a pound – trading down the maximum 5.0 cents a pound allowed by exchange rules.
The contract in late deals stood just about that level, at 68.12 cents a pound, a drop of 4.2% on the day.
By Mike Verdin