THE INTERNATIONAL Cotton Advisory Committee lifted expectations for average cotton prices this season to a clear three-year high, even as futures lost some of the buoyancy that saw them soar four per cent on Thursday.
The ICAC raised by three cents a pound to 75 cents a pound its forecast for average cotton prices, as measured by the Cotlook index of physical values, in 2016-17.
The upgrade, to a figure representing a five-cent uplift year on year, implies values holding around current levels, with the Cotlook A on Thursday pegged at 75.0 cents a pound.
And the ICAC’s revision to its price outlook reflected a downgrade of 490,000 tonnes to 18.14m tonnes in its forecast for global cotton stocks at the close of the season.
That took the stocks forecast well below the high of 22.3m tonnes reached in 2014-15, and indeed put them close to a five-year low.
Compared with consumption, to form the stocks-to-use ratio closely watched as an indicator of price potential, inventories will end the season at 76 per cent, down five points year on year.
Chinese stocks shrink
The committee highlighted the drain on Chinese inventories from auctions from huge government reserves built-up thanks to a — scrapped — subsidy system which offered farmers guaranteed prices well above world market values.
“Ending stocks in China are expected to decrease by 13 per cent to 9.9m tonnes in 2016-17 as the government continues to dispose of its reserves.
“By the end of August, the Chinese government sold 2m tonnes from its national reserve, bringing the volume held by the government down to a little over 9m tonnes.”
‘Heavy, and largely unwanted, rains’
However, the reduction in world stocks overall reflected in the main a weaker production outlook, with the ICAC, for instance, issuing a relatively downbeat estimate for US production, of 3.3m tonnes (15.2m bales).
That is below the US Department of Agriculture estimate of 15.9m bales, with the ICAC more downbeat on harvested area, pegging it at 3.6m hectares (8.9m acres), compared with the 9.5m acres forecast by Washington officials last month.
Indeed, the ICAC estimate comes as the US crop is facing a test from Hurricane Hermine, which is passing up through Georgia on its way up through the eastern US cotton belt.
“Hurricane Hermine has slammed into shore near Tallahassee, Florida, with 80mph winds and heavy rains,” said Louise Rose at the US-based Rose Report.
“Most major cotton producing areas within Florida, Georgia, North Carolina, South Carolina and Virginia are expected to receive heavy — and largely unwanted — rains over the near-term.
‘Wary of overstating the impact’
With the five states mentioned by Mr Rose expected by the USDA to produce 3.85m bales of cotton this year, equivalent to 25 per cent of domestic output, concerns over damage to the crop from Hermine fuelled a four per cent surge in New York-traded cotton futures, for December, in the last session.
However, December futures eased back 0.7 per cent to 67.71 cents a pound in early deals on Friday, amid ideas that crop concerns may have been over-egged.
At the Commonwealth Bank of Australia, Tobin Gorey, focusing on Georgia and the Carolinas, noted that latest USDA crop progress data showed about one-quarter of cotton in these states in the sensitive open boll stage as of Sunday.
“So perhaps four per cent or so of the US crop will be vulnerable to damage,” Mr Gorey said.
“While the situation warrants close watching, we are wary of overstating the potential impact on crops at this stage.”
HURRICANE HERMINE has torn a path of destruction across Florida, leaving more than 250,000 homes and businesses without power, flooding low-lying areas and raising concerns over the spread of the Zika virus.
The first hurricane to make landfall in Florida since Wilma more than a decade ago, Hermine came ashore early on Friday near St Marks, Florida, 30km south of the capital of Tallahassee, packing winds of 130km/h and churning up a devastating storm surge in coastal areas.
On its current path, the storm could dump as much as 38cm of rain on coastal Georgia, and the Carolinas. Forecasters warned of “life-threatening” floods and flash floods. The governors of Georgia and North Carolina declared emergencies in affected regions.
(From AgriMoney.com and other sources).