Cotton futures plunge on USDA estimates

ICE cotton futures plunged over 4 percent on Tuesday, the biggest one day fall in a month, to settle limit down after the US Department of Agriculture (USDA) raised its global and US production estimates for the 2017/18 crop year. The December cotton contract on ICE Futures settled limit down, or 3 cents lower at 69.11 cents per lb. It traded within a range of 69.11 and 72.1 cents a lb.

The price move prompted the ICE Futures US exchange to expand the daily trading limit for all Cotton No.2 futures to 4 cents per lb, effective with the start of trading for Wednesday. Analysts said damage caused by hurricane Harvey in the top cotton producing state, Texas, and Irma in Georgia, the second major producer, were clearly not factored into the report, however the US acreage stands high for this year.

"You might take away 10 percent of the Georgia crop but we've planted extra anyway this year ... anything above 21 million is going be bearish. They may cut it back next month by 200,000 to 21.5 million bales and that's still going to be a huge crop," said Keith Brown, principal at cotton brokers Keith Brown and Co in Moultrie, Georgia. Projections for world ending stocks for the 2017/18 crop year were seen at 92.5 million bales, 3 million above their 2016/17 level, as per the latest World Agricultural Supply and Demand Estimates (WASDE) report. Projections were raised for several countries, led by the United States and India.

US cotton output is seen at 21.76 million bales for 2017/18 compared with 20.55 million bales production projected last month, the report showed. "This report is very bearish, especially in light of the fund and speculative traders ramping up their long position ahead of this report," said Jobe Moss, a broker with MCM Inc in Lubbock, Texas.

The contract slumped 4.16 percent, its biggest one-day percentage fall since the release of last month's WASDE report on Aug. 10 when the agency raised its US output estimate by 1.5 million bales. Speculators raised their net long position in cotton by 22,622 contracts to 54,710 contracts in the week to Sept. 5, US government data showed on Friday. This was the largest bullish position since June 16. The US Department of Agriculture's weekly crop progress report on Monday showed 63 percent of the crop was in good or excellent condition against 65 percent a week ago. Total futures market volume rose by 8,473 to 42,174 lots. Data showed total open interest fell 535 to 245,872 contracts in the previous session.