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Market Watching for Harvey’s Impact on U.S. Crop

Mother Nature took us back to a 70 cent trade Friday morning (August 25) before succumbing to the “buy the rumor, sell the fact,” market adage as Hurricane Harvey bore down on the open and ready-to-pick South Texas Upper Coastal Bend.

Harvey could hit 4 million bales of cotton in Texas and the Mid-South – a most unwelcome event. Potentially, it could add some welcome relief to the Southeast crop.

The overall threat sent prices on triple digit gains on the week and nearly wiped out all the losses that followed the bearish USDA supply demand report two weeks ago. The market will spend the weekend and early next week assessing crop damage, which is expected to be heavy in the Upper Coastal Bend.

Until some confirmation can be had, look for prices to find resistance at 69 cents, with support at 65 cents. The 65-69 cent trading range will likely remain in play. But Mother Nature will work her magic in other regions as the season plays out. Longer term, the potential for a very wide 62 cent to 72 cent trading range could be in front of us. In the absence of Mother Nature, the bias calls for lower prices.

For example, the somewhat successful harvest in Brazil has been slowed by rains as it winds down, just as was the case in Australia. Long range weather forecasters are calling for the same pattern to surface in the U.S., especially on the Texas Plains as that crop moves toward maturity.

The Mid-South has been wet most of the year, but has fruited extremely well. Dry weather is now needed to mature that crop. The Mid-South wants nothing but sunshine for the next two months. But Harvey and its remnants may keep the Delta states wet all week and cause considerable fruit loss or deterioration.

The pattern Harvey actually follows changes by the hour, and it is possible that much of the Arkansas and Mississippi crops will miss the heavy rains. That, of course, would be welcomed by the grower and beneficial to the plant.

The Southeast could enjoy limited moisture, but could use another good soaking before settling back for another six to eight weeks of bright sun to finish off the region’s heavily fruited crop.

The region in harm’s way is the Upper Coastal Bend. The Lower Bend is some 95% harvested, but the remaining 5% of what has been a record quality crop with a record/near record yield will suffer heavy quality losses. Yet, the Upper Bend, with its harvest just beginning, and with mostly open bolls, stands to suffer 25% yield loss, but significantly more quality loss if the hurricane moves as forecast.

Most hurricane damage is actually associated with quality loss and is about 50-75% of the prior value of the fiber. Thus, fiber quality stands to endure the most significant loss. That is, the entire Upper Coastal Bend crop is faced with grading out as low quality and even some below grade, and that will amount to a devastating loss to the cotton grower.

Yet, behind all of this is the forthcoming USDA September crop report, which undoubtedly will contain the corrected and higher than previously reported U.S. planted acreage. USDA will likely adjust planted acreage 250,000 to 350,000 acres higher.

Additionally, the U.S. crop as reported by all accounts, has made excellent progress the past month and, before any loss to Harvey, was expected to total as much as 21.0-21.25 million bales. Thus, in the raw accounting scheme, including the loss to Harvey and the increased plantings and yield, the U.S. crop could easily remain at 20.5 million bales, unchanged from the August report or even higher (the primary reason why futures price saw triple digit losses on August 25).

Thus, Hurricane Harvey may be doing nothing more than preventing futures from falling below its 65 cent price support in the short term. Yet, the verdict will not be in for another week as to the crop damage/loss resulting from the storm. Too, USDA field enumerators will be in the fields next week gauging crop yield potential to be reported in the September 12 crop production report.

U.S. export sales continue to impress the market, as weekly net sales totaled 227,600 RB of upland and 6,900 RB of Pima. Even sales of 51,900 RB were reported for the 2018-19 marketing season. Shipments, noting the need for nearby delivery, totaled 221,800 RB of upland and 1,000 RB of Pima.

China continues as an excellent buyer of U.S. high quality, buying 45,200 RB of upland on the week. Chinese imports are being dominated by Australian and U.S. growths.

Likewise, Chinese Reserve sales continue to outpace the expectations of even the most optimistic. Friday sales (August 25) were fully subscribed, 135,683 bales, outlining the Chinese hunger for quality cotton. Annual sales by the Reserve to domestic mills to date have totaled almost 11.7 million bales. National Reserve stocks have fallen below 27.3 million bales and will likely fall to between 25.5-26.5 million by the end of September when Reserve sales end – corresponding with the beginning of the 2017 Chinese new crop harvest.

Most had expected the 2017 Reserve sales to total only 10 million bales, but it may balloon to near 13 million bales. Thus, the Chinese textile industry is booming, and world consumption estimates must be increased and the corresponding world carryover decreased.

Nevertheless, the 65-69 cent trading range will remain in force, but with a bias to the lower.

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