Cotton prices fell month-on-month in September as the impact of two major hurricanes in the US was less than first feared.
According to the Cotton Market Fundamentals and Price Outlook monthly review by Cotton Inc, NY futures started out higher at the beginning of September due to production-related concerns associated with the predicted damage of Hurricanes Irma and Harvey on crops. Values climbed from levels near 67c/lb in mid-August to near 75c/lb in early September.
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But after becoming apparent the damage “may be less than feared,” NY futures turned lower. This lowered further following the September report from the US Department of Agriculture (USDA) suggesting another large increase to the US crop production forecast.
The Cotlook A Index followed the pattern of movement in NY futures, rising from levels near 77c/lb to those near 84c/lb between mid-August and early September. More recently the direction turned lower, with the latest value for the A Index being 82c/lb.
A larger US crop implies more cotton will be available for sale, and the forecast for US exports increased 700,000 bales to 14.9m.
Outside of the US, there have been several “notable” upward revisions to production forecasts.
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By GlobalData- Indian production was increased from 29 to 30m bales
- Brazilian production was increased from 7 to 7.5m bales
- Mexican production was increased from 1.2 to 1.4m bales
- Australian production was increased from 4.8 to 5m bales
- Turkish production was increased from 3.6 to 3.8m bales
There were no “significant decreases” to country-level production forecasts. The global harvest estimate for 2017/18 rose from 117.3 to 120.8m. A consequence of the large increase in harvest expectations relative to mill-use is that global ending stocks are expected to rise further from 90.1 to 92.5m bales. All of the increase in stocks is projected to occur outside of China, and – being available for trade – it is available to weigh on prices.
“This month’s revisions changed the storyline for the 2017/18 crop year from being on relatively equal production and consumption to one of production surplus,” says the report from Cotton Inc.
“While the two recent hurricanes highlight uncertainty that surrounds production forecasts until bales are harvested, ginned, and safely moved out of harm’s way, this month’s set of revisions highlights an old saying in the cotton market, and that is that big crops tend to get bigger. It remains to be seen what the full extent of storm-related damage might be, but the latest crop condition ratings are strong and yield prospects are favourable.
“This is true outside the US as well. While late rains have affected planting and harvesting in India, there is also the potential for upward crop adjustments for that country. With mill-use forecasts already suggesting a relatively strong 4% increase in consumption there may be limited opportunity for increases on the demand side of the balance sheet. This suggests further increases in cotton production figures should imply further increases in stocks, and therefore further downward pressure on prices.”
