Another Unexpected Turn of Events for Cotton
Spend Matters welcomes this guest post from Verity Michie, market analyst at Mintec.
The U.S. cotton crop has been the root of much surprise throughout the current 2017-18 season, with prices rising over 35% in the past eight months.
We covered the first increase at the beginning of the year, where prices unexpectedly shot up, following a rise in demand. We concluded that prices may stay at high levels; however, in mid-May, there was another unexpected acceleration.
New figures for the upcoming 2018-19 season report that U.S. cotton production has been forecast to fall 7% year on year. However, large carry-over stocks from the 2017-18 season have caused ending stocks to be forecast up 11% year on year to a 10-year high. With the high carry-over stocks likely to relieve pressure from the reduced production, the 7% week-on-week increase in the last week of May came as a bit of a shock.
So what has happened?
Unfortunately, two severe weather events hit different parts of the U.S. simultaneously, but both being important cotton growing areas. The crop was sown in March and April and is now starting its critical growing stage.
Firstly, throughout May, the southeastern and south central parts of the U.S. were hit with record-breaking temperatures causing droughts, including in Texas where around 32% of U.S. cotton is grown.
Meanwhile, subtropical storm Alberto hit Florida on May 28, bringing severe rains before making its way inland over the next few days, through other major cotton growing areas.
So what does this say about the condition of the upcoming crop?
The full extent of the damage caused by the extreme weather events will not be known until the harvest begins in August. However, the early growing period is a critical time for the crop. While the crop is germinating, drought stress can have serious consequences as it means the crop is unable to absorb water. With the timing of the heat wave and drought, it is in the cards that the crop could have been damaged in the very early stages.
So will farmers be able to save their crops before it’s too late? Let’s hope so!