The USDA’s scheduled release of their October cotton production estimate was too soon after Hurricane Michael to account for the likely massive damage. As a result, most analysts, and the futures market itself, appeared to discount the October numbers. USDA’s World Agricultural Supply and Demand Estimates (WASDE) report for November was thus set up as a fulfillment of expectations from a month ago.

Accordingly, the November WASDE showed a major month-over-month reduction of 1.35 million bales, mostly from the southeastern U.S. This cut resulted from 5 percent less yield from 2 percent fewer harvested acres. U.S. exports were lowered by a half million bales, and domestic mill use was cut 100,000 bales. 

The bottom line of these adjustments was a 700,000 bale reduction in U.S. ending stocks, compared to the previous month. While certainly bullish-looking, the muted market reaction may reflect that a big production cut was already priced in.

The November adjustments to foreign cotton supply and demand followed the U.S. pattern of aggregate net lower production (led by India, Pakistan, and Central Asia), which dominated an aggregate cut in domestic use (led by India, Pakistan, Turkey, Brazil, and Indonesia). All this, plus some revisionist history in Benin, led to yet another trimming of world ending stocks, the fifth in six months. Such adjustments would ordinarily be price-supportive, although it probably isn’t encouraging to see declining consumption.

There appears to have been a shift in the major influences on cotton prices. Five or six months ago, everything was lined up to support prices. Demand indicators were more positive, with a large amount of new crop cotton being sold even before the marketing year had started. On top of that, there were supply concerns due to severe drought in parts of the U.S., and questions about Indian supplies. This alignment of forces allowed prices to rally into the 90s.

By late summer, this picture began to change. The drought situation had faded, and U.S. export demand decreased. In addition, or perhaps because of this, speculative buying of ICE cotton futures downshifted, resulting in lower prices. As the season progressed toward harvest, the twin hurricanes and rainy conditions have created a new supply concern, whose influence is pulling in the opposite direction from the influence of weak demand.

I am not certain which influence will dominate. Across Texas, the continuing rainy harvest conditions are a worsening situation. There are areas of Texas where cotton is two months delayed getting out of the field, with the rains still coming. 

This may yet cause some production losses, but I think the major effect will be widespread quality degradation. The likely losses will be in higher harvesting, higher ginning costs, and cash-priced discounts for poor color grades, high bark, high leaf, seed coat fragments, trash, etc.  But these effects may not influence the futures market that much, nor USDA’s estimate of harvested bales. 

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