Thompson on Cotton: Early Estimates on Harvey Losses Near 750,000 Bales

Round modules hanging on at ravaged yard at Bayside Gin in Texas, post-Harvey.

We mentioned a few weeks ago, USDA’s 21.5 million bale crop estimate seemed highly unlikely with so much time to go before it was in bagging and ties. That being said, we had no idea what this crop was about to confront.  One thing is for certain, the next time we hear meteorologists predict a more active hurricane season, we’re taking it to heart. 

Hardly two weeks after Hurricane Harvey slammed the Texas coastline with record setting rainfall totals, Irma, the second strongest storm on record, is barreling across the Atlantic with its sights set on the Southeast.

The uncertainty created by these weather events and their timing, which is sure to shrink this year’s crop, has pushed prices significantly higher, at least for the moment. Since it became apparent Harvey would hit the Coastal Bend area of Texas at a most critical time with half the crop still in the field, cotton prices have gained over seven and a half cents, including a limit up move Tuesday as Irma grew to Category 5 status. December closed yesterday (9-6-17) at 74.50 – only a cent off the contract high.

By now everyone has seen pictures of the incredible devastation caused by Harvey. With modules blown apart and cotton fields submerged under several feet of water it will take some time to accurately determine losses, but early estimates indicate they may approach 750,000 bales.

In addition, on its way out it dropped over 8 to 10 inches of rain in a path through heavily concentrated cotton producing areas of the Midsouth. In this region, quality losses may be the greatest concern, but a meager 10 percent loss in yield would equate to several hundred thousand bales.

Losses from Harvey can certainly be quantified but potential damage from Irma is still to be reckoned with and gauging its strength could be devastating.  Though still three to four days out from the U.S. mainland and unpredictable, current projections have her path turning north and targeting the eastern seaboard. Be mindful this storm is enormous in size with severe weather stretching hundreds of miles from the eye, so anyone around its path should prepare for the worst.

Our thoughts and prayers go out to everyone in the vicinity of this powerful hurricane. At present, cotton along the east coast of Georgia, the Carolinas and Virginia seem to be at greatest risk. Our heart truly goes out to our friends in the Carolinas who must be thinking what have we done to deserve such three years in a row.

What lies ahead for this market as we approach harvest? Current levels should remain intact, at least until the outcome of Irma is better known. Fortunately, this latest rally has provided an opportunity for those with cotton still on call to fix at levels once thought to be unobtainable this near harvest. If you have not priced any cotton as of yet, do not let this occasion pass you by without pricing at least some of your production.

More on Cotton

Those that have previously priced a significant portion may want to ride this for a while to see if there is additional momentum. I say this because there seems to be some underlying support within this market besides just reactions to weather events. The charts are flashing bullish indicators with prices now positioned to test 76.50.

The biggest positive is a sense of demand strengthening, for history has shown us market rallies are more sustainable when driven by demand rather than a result of production declines. Weekly export sales continue to be very strong, over 240,000 bales last week, as was the week prior.

China, with their reserve auction scheduled to last another month, has announced it will limit sales to mills only while prohibiting traders. This would suggest a desperate need on their part for quality cotton. Keep a close eye on Chinese imports for they could be a big driver of prices in the months ahead.

Finally, our domestic crop has no doubt gotten smaller in light of recent events and will likely fall short of 20 million bales despite West Texas being on track to harvest a huge crop, possibly nine million bales.

Though there might be some pressure on prices come harvest, we’ll say again this has the makings of more than just a weather market. The latter usually results in a knee jerk reaction to initial damage then retraces quickly once the news becomes old. Granted Harvey and Irma are no run of the mill hurricanes, but the market has shown resilience progressively advancing twelve out of the last fourteen trading sessions.

Let me close this market commentary with a thought or two completely unrelated to cotton or prices.

In watching the aftermath of Harvey, the actions of those involved and those who rushed to volunteer their services have restored my belief in mankind. Texans have always been strong and stalwart individuals, but other people are coming from states far and wide on their own accord to simply help their fellow man; All the while blind to color, race, gender, age, or sexual preference.

It’s disappointing it took such a catastrophe to bring this to light. However, if we can stay mindful of this beyond the storms, beyond the cleanup, to when some degree of normalcy returns, it may become the silver lining in what was a very dark cloud over our country. We wish God’s blessings on all.



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