Sowings upgrade fails to quell cotton crop fears

by Agrimoney.com

The threat of high rates of lost acres, to drought, remains a spectre over US cotton production prospects despite the hike by American officials to their forecast for sowings of the fibre.

American farmers planted 13.7m acres with cotton this spring, a five year high, the US Department of Agriculture said on Thursday, lifting its forecast by nearly 1.2m acres.

However, there was no certainty that this increase will end up translating into a rise to the forecast for production too, given the extent of the drought challenges facing the crop, analysts said.

The USDA earlier in June estimated the abandonment rate at nearly 19%, among the highest in recent history. Officials estimate the proportion of the US cotton crop in "good" or "excellent" condition at 27%, compared with 62% a year ago.

'Conditions remain severe'

"With 1.16m more acres, a revision [in production] higher is possible, but due to weather problems resulting in yield reductions and a high abandonment rate, such an upwards adjustment is not a given," Rabobank said.

"Conditions of drought remain severe" in Texas, the main producing state in the US, the top cotton exporter.

Goldman Sachs analysts said that such fears might support prices of the fibre despite the, ostensibly bearish, sowings upgrade.

"While this large cotton average increase could accelerate the decline in cotton prices that we forecast, we expect that concerns for large abandonment in the US South will limit price downside in the near-term," Goldman said.

Price forecasts

The bank left its forecasts for cotton prices unchanged, at 150 cents a pound in three months' time, declining to 125 cents a pound in a year, for New York's near-term contract.

However, Rabobank said that, despite its reservations over US cotton production, "our view continues to be that prices will correct lower".

New crop cotton for December stood 0.1% higher at 118.75 cents a pound in late deals in New York. The soon-to-expire July contract was 1.1% higher at 161.50 cents a pound.

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