Cotton futures extended their rebound after the US raised above 9m bales its forecast for the top in world stocks this season, as it downgraded Chinese and Pakistani harvests to multi-year lows.
Cotton futures for March closed 0.1% higher at 61.41 cents a pound in late deals in New York, achieving their first back-to-back winning sessions of 2016.
The increase followed the downgrade by the US Department of Agriculture, in its much-watched monthly Wasde report on world crop supply and demand, of 1.5m bales to 102.9m bales its forecast for world stocks at the close of 2015-16.
While still large, at the equivalent of a little over 11 months of world consumption, the figure was lower than that expected by investors.
Signally, the downgrade also meant that stocks at the close of 2015-16 will no longer rank as the second highest ever, but fall behind those of 2013-14 as well as last season’s 112m-bale record high.
‘Record low yields’
The cut to stocks expectations reflected weakened estimates for output both in China, now seen tumbling by 6.20m bales to a 15-year low of 23.8m bales after a subsidy rejig, and in Pakistan.
The Pakistan crop was downgraded by 800,000 bales to a 17-year low of 7.20m bales, with falling arrivals of cotton at gins indicating “more extensive whitefly damage than previously expected”, the USDA said.
“Yields are reported at record low levels due to widespread whitefly and cotton leaf curl virus infestations,” the USDA said, noting “continued reports of significantly poor productivity across the major cotton growing provinces”, Punjab and Sindh.
Treatment of pests was “ineffective because farmers cutback on chemical use in an effort to reduce costs”.
‘Limits downside price potential’
The USDA also trimmed its estimate for domestic output last year by 88,000 bales to 12.8m bales, thanks to a small yield downgrade, but reduced its estimate for domestic consumption too, citing data on spinning activity up to November.
US inventories at the close of 2015-16 were pegged at 3.10m bales, an upgrade of 100,000 bales, but a figure in line with market expectations.
“Overall, we see today’s data as supportive [to prices] and likely limits downside potential,” said Louis Rose at the Rose Report.
especially considering the Mar contract’s technically oversold condition and a US export report on Thu that is likely to be much improved vs the week ending Dec 31.