ICE cotton futures fell over 4 percent on Thursday to a two-week low after markets were surprised by supply estimates from the US Department of Agriculture, which raised its projections for US and global production for the 2017/18 crop year. Cotton contracts for December closed limit down, or 3 cents at 68.11 cents per lb, a two-week low. It traded within a range of 68.11 and 71.19 cents a lb. The contract also registered its worst intraday decline of 4.22 percent.
"The first survey of US 2017 crop production indicates a crop of 20.5 million bales, 1.5 million above last month and the largest production in 11 years," the USDA said in its monthly World Agricultural Supply and Demand Estimates report released on Thursday. World 2017/18 ending stocks are now projected at 90.1 million bales, an increase of 1.4 million from the July forecast, and 100,000 above 2016/17, the report showed.
"It is a big surprise on the US production side and I don't agree personally that the crop will be that big," said Anestis Arampatzis, risk management consultant with INTL FCStone. Total futures market volume rose by 25,386 to 43,241 lots. Data showed total open interest gained 2,454 to 221,546 contracts in the previous session.
The Thomson Reuters CoreCommodity CRB Index, which tracks 19 commodities, was down 1.46 percent. "Numbers are bearish, but production estimate will likely prove to be too high ... They look a bit inflated," said Louis Rose, co-founder and director of research and analytics at Rose Commodity Group.
"We were expecting numbers somewhere around 18.6 million bales and now it looks somewhere around 19.2 million bales, but definitely not 20.5 million." Meanwhile, the USDA reported net upland sales of 75,800 running bales for 2017/2018, which began on August 1. A total of 745,300 running bales in sales were carried over from the 2016/2017 marketing year, which ended July 31.
Certificated cotton stocks deliverable as of August 9 totalled 19,523 480-lb bales, down from 20,135 in the previous session. China will produce 5.28 million tonnes of cotton in 2017/18, up 9.5 percent from last year due to rising acreage and yield, the agriculture ministry said on Thursday.
Copyright Reuters, 2017