November cotton (COTTON) contracts gained nearly 4% yesterday and rose to $73 per bale on ICE, causing a halt to trading in the commodity during afternoon hours due to elevated volatility. The reason for the rise is fears of a hurricane season in the U.S. that could severely disrupt supply in important states, which are gaining strength after the latest USDA WASDE report indicated a strong downward revision of August crop forecasts.
- The low that has 'hovered' over the US East Coast is expected to bring gusty winds, heavy rains and even flooding to parts of the US in the coming days. Traders fear that supply estimates from the states of Mississippi and Louisiana will be revised significantly downward, as the downpours and flooding come at the most risky time, i.e., the cotton harvest, which has been significant and of high quality in the mentioned US states.
- Hurricane Francine hit the southern states, causing high winds and rainfall; Louisa was hit by flooding, and the states of Mississippi and Alabama also felt the difficulties. The Federal Emergency Management Agency (FEMA) urged the public to prepare, warning that the National Oceanic and Atmospheric Administration's (NOAA) hurricane forecast for 2024 is this year's “most aggressive forecast ever.”
- Data from the International Cotton Advisory Committee (ICAC), released in early September, indicated that cotton production in 2024-2025 will reach 25.6 million tons, a 2.7% y/y drop from the August forecast, but still a 6% increase from the previous season. Demand for cotton remains high at nearly 25.9 million tons globally, up 3.5% from the previous season. Downward revisions may even suggest a deficit in the cotton market in 2024, while prices are still trading at a huge discount to 2022 records ($155 per bale vs. $72 currently).
Current baseline forecasts from the National Hurricane Center in Miami suggest that Tropical Storm Gordon (the next one tracked after Francine) will weaken and turn away from the United States, turning back toward the northeast over the next few days and may weaken over the next few weeks. Nevertheless, forecasters say there is still the potential for the storm to regain strength in the next few days. As a result, COTTON could see elevated volatility, with the potential to cover significant short positions, by funds and large speculators, reporting in the CoT, against the risk of further supply revisions.
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Source: xStation5
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