Wow!” may have been the collective response of cotton market participants Wednesday when the U.S. Department of Agriculture released its monthly supply and demand reports. Based on this season’s first production field survey, USDA lowered its estimate of the 2015 U.S. cotton crop 10 percent to 13.1 million bales. The sharp cut in production sent cotton futures at the Intercontinental Exchange (ICE) surging and settling at near-limit-up levels.
The department took into consideration lower planted acres, higher abandonment and a lower average yield compared to the previous month’s expectations. Projected domestic consumption was lowered 50,000 bales to 3.70 million, and estimated exports were lowered 800,000 bales to 10.00 million. Consequently, U.S. ending stocks for the 2015-16 marketing year are now projected at 3.10 million, down 1.10 million bales from the previous season.
Texas accounted for much of the reduced production as USDA pegged the crop at 5.30 million bales compared to almost 6.20 million last year. The High Plains crop reporting district’s production was estimated at 3.67 million bales, and the Rolling Plains was pegged at 810,000 bales. The Oklahoma crop was estimated at 350,000 bales, up considerably from last year’s 269,000-bale crop, and Kansas production was estimated at 50,000 bales, up slightly from 2014. Some traders seemed to disagree with USDA’s assessment of the Texas crop which was based on fewer planted acres, an abandonment rate of 18 percent, and yields of only 606 pounds per acre.
USDA also lowered its estimates of world beginning stocks and production and raised consumption. Consequently, the department’s estimate of world ending stocks was cut by almost 3.00 million bales. China’s production was lowered 1.00 million bales, and consumption was cut 500,000 bales. The crop in India was lowered 500,000 bales, and consumption was cut 250,000 bales.
Cotton futures surged after the supply and demand reports were released at 12:00 p.m. Eastern Daylight Time Wednesday. December cotton briefly touched limit up before settling 287 points higher at 64.69 cents per pound. All other futures contracts settled with strong gains as volume at ICE jumped to 62,300 contracts.
The bullish trend carried over to Thursday’s ICE session as traders continued to try to digest USDA’s reports. December cotton traded well above 66.00 cents per pound before settling at 65.79 cents, up 110 points. Volume again was quite high at an estimated 57,700 contracts.
In other news, USDA reported net export sales of U.S. upland cotton totaled 96,900 bales in the week ended Aug. 6. The featured buyers were Vietnam, Turkey, Taiwan, Bangladesh, and Mexico. The department also reported 439,300 bales of export sales were carried over from the 2014-15 marketing year which ended July 31.
Export shipments on July 31 totaled 38,300 bales, and shipments for the Aug. 1-6 period totaled 99,600 bales with Vietnam, Mexico, Turkey, Indonesia, and South Korea the primary destinations. Traders and analysts this week also were paying attention to developments in China where the People’s Bank devalued the country’s currency a total of 4.65 percent through Thursday to help boost the economy. The move put pressure on markets and currencies around the world.
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