Cotton: The sleeper, for now

Focus on Futures: Cotton

In past US droughts, cotton crops were damaged by the hot and dry weather alongside grain crops. While the entire US has been affected by well-above-normal temperatures this summer, cotton crops have largely been spared the worst of the devastating drought that has slashed estimates for what was expected to be a blockbuster corn crop and a very decent-size soybean crop.

The most recent weekly progress report shows that 41% of the crop is in the good-to-excellent category, down from 44% a week earlier, but still up significantly from last year at this time when only 30% of the crop had the top rating.

To illustrate how much worse the effects of the drought have been on corn crops, consider that in mid-June, just before ratings began to reflect the hot and dry weather, 53% of the cotton crop was in the good-to-excellent category, which as mentioned above, is currently at 41%. Corn, on the other hand, has fallen from 60% to a meager 23%. Traders have therefore not focused much on cotton – certainly not from a weather angle.

Chinese output may prove to be somewhat of a bearish influence as well. Although 2012-13 planted cotton area was close to 10% below the previous year’s, favorable weather and better disease control seem to have improved yields in some areas. The current USDA estimate for Chinese output – based loosely on the drop in planted area – calls for a 30.5-million-bale crop, 3 million tonnes smaller than in 2011-12. Chinese analysts have been raising their estimates for the crop. The USDA will almost certainly raise its estimate for the Chinese crop in the August 10 crop report, but it will be very interesting to see if it will be by a substantial amount.

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