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Cotton Marketing Weekly

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September 8, 2017

An ill wind is blowing amidst the chaotic cotton trading that was brought about by back to back hurricanes slamming into two of the country’s major cotton producing regions. But which way does the wind blow? After scattering most of the Upper Coastal Bend crop, hurricane Harvey passed the destruction baton to hurricane Irma. She is now blowing her way through the high yielding Georgia and South Carolina crops. Much of the increased Alabama acreage will also fall under her spell. The question as to how much acreage and yield will be lost to Irma remains a mystery, as reflected by the price volatility expressed in the New York ICE contracts. Upwards of 800,000 bales were lost in the Coastal Bend of Texas to Harvey with yield losses in Louisiana as high as 30 pounds per acre. The average loss to the Mississippi crop could be 10 pounds per acre, the same as for Arkansas. USDA will give us its idea on September 12, at 12 noon Eastern time.

View the report at https://www.usda.gov/oce/commodity/wasde/latest.pdf for the full supply demand picture. As Irma bears down on the Southeastern crop it is expected that the Georgia and South Carolina crops will bear the brunt of the damage. Given that the impact of Irma is in front of us the best hope is that the average yield in those two states will be diminished by no more than 15 pounds per acre. Yet, it will likely be Thursday of next week before reliable loss estimates are available. If there is any good news, it is that Irma will not make landfall in the heart of a production region, as was the case with Harvey. The USDA September production report will still exceed 20 million bales, despite the losses in Texas and other Gulf states. Yet, it is also doubtful, in my opinion, that the U.S. harvest will exceed 19 million bales, 1.5 million below the current USDA estimate. Much of the U.S crop is 21 to 28 days late, very unusual in that such a large percentage is this late this far into the season. As was said, the U.S. crop is loaded with fruit and looks to be headed for a bumper harvest. However, this is the first week in September, not the first week in August. Mother Nature has kept this crop a month behind all year, and now, She is telling us to expect cool wet weather for the remainder of the year, weather not conductive to finishing off a cotton crop.

Harvey, going onshore the last week in August and now, Irma, coming onshore the first week in September will make the September crop production and world supply demand reports most difficult to read and decipher. If seconding guessing USDA wasn’t already an 80 hour work week, the next month will find USDA analysts second guessing themselves. The market will “develop” and trade its own data. Thus, the price volatility will continue.

The coming month will better define both the quantity and quality of the U.S. harvest. However, so much of the U.S crop is late that it will be the November report that will likely be the most accurate for the season. Therefore, traders will continue to bounce back and forth in the coming two months. The ten cent 65-75 cent trading range will remain in place, but now with a bias to the upside due to potential weather scares. The upcoming September production report could still be off as much as 1.5 to 2.0 million bales from the final 2017 crop production report, not released until June 2017. U.S. merchants and international textile mills have already begun the hunt for high grade cotton. Asian mills are routinely expecting a large supply of 21’s and 31’s and were shocked this week when told the high grade supply had all but evaporated. Too, those mills were spoiled by the excellent quality of the prior two years. Too, they were surprised to learn that staple lengths above 36 would likely be in short supply this season. Thus, I again point to the importance of quality in the marketplace and the difficulty the world, and particularly the U.S., will have finding a home for abundance of light spotted and spotted grades left behind this hurricane season. Harvey left South and Central Texas cotton grades in shambles. Irma is threatening to do the same to most of Georgia, Florida, all of South Carolina and pockets in North Carolina.

Likewise exports continue to remain strong as current warehouse inventory contains high grade stocks. Vietnam and China continue as the best buyers. Too, the Chinese Reserve sales continue to essentially sell out on a daily basis and the available inventory is now just a shade above 26 million bales, after being some 39 million just one year ago.

It should be noted that textile mills crossed another line this week. They established a record level number of on-call unfixed sales compared to on-call purchases. Thus, mills are once again caught very heavily leveraged to the position of expecting bearish price activity. Given that they have played their hand so early in the season, a season that will be hard pressed to draw large levels of suitable cotton to the Board, mills are very vulnerable to rapid price movement as respective contract month first notice day rolls around.

The 65-75 cent trading range continues.

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