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.
"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 1m bales.
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 bank said.
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 2017-18.
"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", Abares said.
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 6.
The Abares forecast is also well above the 69 cents a pound at which the ICAC sees Cotlook A values averaging in 2017-18.
By Mike Verdin