Cotlook lifts US cotton harvest estimate 'despite hurricane damage'

04.09.2017

Cotlook underlined the prospect of a large US cotton crop, despite damage from Hurricane Harvey, lifting its forecast for the harvest above 20m bales, an 11-year high.

The cotton analysis group, in a monthly update, said that "despite the damage sustained in south Texas during the past week, the [production] figure is raised by 326,000 tonnes", or 1.50m bales, from the July estimate.

The upgrade was only 50,000 bales short of that that the US Department of Agriculture made to its own July estimates, before Hurricane Harvey struck, the first major hurricane to make landfall in the US in 12 years, causing economic losses pegged by Moody's at $81bn-108bn, and potentially more.

However, the Cotlook estimate for US output, at 4.398m tonnes (20.2m bales) remains below that of the USDA, which pegged the crop, pre-Harvey, at 20.55m bales (4.47m tonnes).

Loss estimates

The revision comes amid continued attempts by cotton investors to assess damage to the US crop from the storm, which affected in particular Texas, which us typically responsible for about half domestic output of the fibre, before moving on to major growing areas in the Mississippi Delta too.

Some estimates for damage have exceeded 600,000 bales, including losses of so-called "modules", the temporary storage piles of compressed crop at the edge of fields.

However, this would represent a relatively small part in production terms of the cotton harvest.

And many damage appraisals are lower still, with Dr John Robinson, cotton marketing expert at Texas A&M University, for instance, putting the figure at "something under 500,000 bales".

Louis Rose at Rose Commodity Group initially pegged losses at about 250,000 bales, but this accounted only for destruction of standing crop, rather than including module damage too.

Quality factor

Mr Robinson added that he did "not find it unusual that there was not a stronger rally in the futures market" from the hurricane, although futures did jump more than 5% from August 25 to September 1, when New York's best-traded December contract closed at 71.88 cents a pound.

"Knocking a hypothetical half-million bales off the bottom line of the US balance sheet would not translate to a nickel [$0.05] rise in the futures price," he said.

However, with quality damage potentially more widespread, and even more difficult to quantify, he cautioned that he was "expecting more a cash market response from Harvey in the form of basis volatility as premium quality cotton becomes more scarce for a while".

He added that "Hurricane Harvey and its aftermath represent a more concentrated version of the uncertain weather market that cotton has faced all summer.

"This uncertainty will continue now around the question of whether the 2017 crop can get enough heat units and clear weather to mature."

Contrast widens between 2016-17 and 2017-18

Cotlook's upward revision to its US crop forecast led a 545,000-tonne upgrade to 25.50m tonnes in its estimate for global output overall in 2017-18.

The forecast for the crop in India, the world's top grower, was raised by 170,000 tonnes to 6.46m tonnes, and that for production in China by 60,000 tonnes to 5.16m tonnes.

With Cotlook raising its estimate for consumption by a more modest 238,000 tonnes to 24.91m tonnes, down largely to a China upgrade, the revisions fed through into an estimate of a 589,000-tonne increase in world stocks over 2017-18.

That compares with a previous forecast of a 282,000-tonne stock-build - and with an estimate of a 1.71m-tonne net drawdown in world inventories last season.

Previously, Cotlook had pegged the 2016-17 drawdown at a more modest 1.26m tonnes, but made large increases to demand in China and the Indian sub-continent.

Bangladesh woes

Separately, the International Cotton Advisory Committee made more modest changes to its own cotton supply and demand estimates, sticking with ideas of production and consumption roughly balancing in 2017-18.

The ICAC raised its forecast for the US crop by 400,000 tonnes to 4.5m tonnes (20.66m bales), a figure a little higher than the USDA's estimate, but added that the "full impact of the recent hurricane in Texas… is still under assessment".

The intergovernmental group also trimmed by some 100,000 tonnes, to 1.4m tonnes, its forecast for 2017-18 consumption in Bangladesh "as widespread flooding in August has damaged infrastructure and made it difficult to transport goods throughout the country and to run businesses".
    


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