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After the Storm, Issues Converge to Keep Cotton Prices Inflated

While damage to North Carolina’s cotton fields from Hurricane Florence is being assessed, any damage would likely have a minimal impact on cotton prices due to the lateness of the season, but other factors are at play that could keep prices on the high side.

In its monthly market assessment, Cotton Incorporated noted that North Carolina, South Carolina and Virginia–where most flooding from Hurricane Florence occurred–collectively account for 6 percent of U.S. planted acres, and are expected to represent 8 percent of national production, according to the U.S. Department of Agriculture’s (USDA) September estimates.

Ahead of the storm last week, Cotton Inc., said, “Given the strength of Hurricane Florence, localized impacts on specific fields could be severe. However, with a small proportion of U.S. acres in the storm’s expected path and only a fraction of those acres with bolls open, the national and international implications of the hurricane should be limited.”

But the impact appears to have been more varied that than.

On Sunday, the North Carolina Cooperative Extension said, “Preliminary reports indicate cotton crop damage ranging from catastrophic to very little, primarily depending on geography and intensity of hurricane wind and rain.”

The impact on prices, however, may be slight.

“With less than 50 percent of bolls open on a relatively small proportion of national acreage, the national and international implications for production and prices are not large,” a Cotton Inc. spokesperson said Monday. “With very heavy rain and flooded fields, however, localized effects on specific fields and farms can be expected to be severe.”

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Of greater concern for cotton price direction, though, is the outlook for trade.

“The central question for trade remains when China might increase imports,” Cotton Inc., which represents U.S. cotton growers, said. “The supply-related scare that sent prices higher in May-June suggested that the time frame may be closer than was previously believed. However, the combination of higher than expected yields out of Xinjiang province (which were the cause of this month’s increase to the production forecast for China) and widespread reports of high levels of inventory held by Chinese mills suggest less immediacy.”

The inflated inventory levels are in part a result of tariff threats and decreased exports in the ongoing trade war between the U.S. and China. Overall shipments of apparel and textiles from China to the U.S. have been down for several months as the trade actions and rhetoric between the world’s two largest economies had simmered, though Monday’s news of the Trump Administration’s new $200 billion in tariffs on Chinese imports could change that quickly.

The USDA said spot cotton prices for the week ended Sept. 13 averaged 78.98 cents per pound. That was up from 78.33 a week earlier and from 69.95 cents reported a year ago.

In the past month, most benchmark prices softened. After moving lower in early August, values for the December New York futures were stable at around 81 cents to 84 cents a pound. The A Index, an average of global prices, similarly fell from levels near 98 cents a pound in early August to between 91 cents and 94 cents more recently.

The Chinese Cotton Index held at levels near $1.08 a pound, while Indian spot prices decreased in local terms. Cotton Inc.’s report noted that the weakening of the rupee against the dollar helped pull the value of Indian cotton lower. In early August, Indian prices were near 90 cents a pound, before falling to about 84 cents a pound in mid-September.

This month’s USDA report featured a “meaningful increase” to world production, up 1.4 million bales 122 million bales, and a “marginal addition” to world mill-use, rising 0.3 million bales to 127.9 million, Cotton Inc., wrote. Compared to last month, the current figure for global ending stocks is 0.4 million bales higher, to 77.5 million bales.

“The forecast for stocks for the world-less-China decreased 0.9 million bales, from 48.5 to 47.6 million,” Cotton Inc. said. “Nonetheless, if realized, this volume would still be highest ever for the collection of countries outside China.”