Cotton goes limit up as US crop downgraded - again

by Agrimoney.com

New York cotton futures reversed a correction which has seen them, twice this week, drop the daily maximum - and turned limit up instead, helped by a downgrade by the US to its harvest hopes.

The US Department of Agriculture cut by a further 1.0m bales, to 17.0m bales, its forecast for domestic cotton production this year, as a drought continues to savage Texas, the country's top cotton-producing state.

The downgrade was "due mainly to expected higher abandonment resulting from the increased severity of the drought in the South West," Kathleen Merrigan, the USDA's acting secretary of agriculture, said.

The estimate for abandoned acres was raised by 600,000 acres to nearly 2.4m acres, equivalent to nearly 19% of plantings – and compared with less than 300,000 acres last season.

The highest abandonment, at least since the 1960s, was recorded in 1998, at 2.6m acres, equivalent to 20% of sowings.

Exports reduced

The USDA forecast that the weaker harvest would have limited impact on US stocks at the end of next season, with the production decrease offset by weaker expectations for exports, including those in the current, 2010-11 crop year.

Selected USDA US cotton estimates, change on last and (year on year) Area sown 2011-11: 12.57m acres, unchanged, (+14.6%) Area harvested 2011-12: 10.20m acres, minus 600,000 acres, (-4.7%) Year-end 2011-12: 2.50m bales, unchanged, (+11.1%) Year-end 2010-11: 2.25m bales, +500,000 bales, (-24%)

"With lower available US supplies and marginally lower world imports, [US 2011-12] exports are reduced 500,000 bales to 13.0m bales," Ms Merrigan said.

America is the world's top cotton exporter.

The report also edged higher, by 320,000 bales to 45.8m bales, the estimate for cotton stocks held by other countries, as high prices keep a lid on consumption.

'No safety net'

Nonetheless, the revisions were deemed bullish by analysts, given the risks posed by such tight supplies.

"I think we've seen the high production numbers for the year, and that as time goes by they will drift downward," Jurgens Bauer at PitGuru said.

Rabobank said the report suggests that "major users will have more domestic supply, but the world's number one exporter, the US, will have less to sell".

Given record low inventories expected at the end of 2010-11, "and expectations of diminished supply from the US in 2011-12, the globe has little recourse if supply disruptions occur".

Lower supply vs lower demand

Cotton for July stood the exchange maximum of 6.0 cents, or 4.1%, higher, at 151.05 cents a pound, in late deals in New York. The contract had lost 12% in the previous four trading sessions.

The new crop December lot was 2.1% higher at 132.90 cents a pound.

"The market's reaction to the report suggest concerns about the supply of the fibre in the new season is starting to attract attention," supplanting concerns about high prices curbing use in 2010-11.

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