The USDA August forecast of 2016/17 U.S. cotton supply and demand numbers were, as of this writing, about to be revised.
The August projection of 15.9 million bales of all cotton was an important first benchmark of actual production since it was the season’s first estimate based on field sampling of squares and bolls.
USDA’s September projections serve as either a confirmation of or contradiction to what they measured in August. This can sometimes lead to market surprises when there are fewer remaining harvestable bolls in September compared to the potential from a month before.
The growing season in the Southwest is winding up in weird fashion. After a very hot and dry July, August was unusually wet. The August rains have probably added some pounds of yield to later-maturing fields in West Texas, particularly irrigated fields, and also, thankfully, reduced some expenses that would have been incurred in with August irrigations.
But, much of the dryland acreage in West Texas was probably too far along to benefit from the August rains, so their effect may be negligible.
It is a different story in Central and Southeast Texas, where continually moist conditions on mature cotton have likely lowered color grades and caused widespread sprouting of cottonseed in the boll. The impact of this could hurt growers through discounted loan values, higher ginning costs, and little cottonseed value to offset those costs.
The level of bales produced by the weird August weather may be the same, or even a little higher. While causing quality problems, my understanding is that the Central and Southeast Texas crop will still have to be harvested and ginned. So there may not be any downward adjustment in aggregate production.
In addition, there may be a marginal increase in West Texas yields and production from later-maturing irrigated land (assuming a long stretch of sunny, warm weather over the next few months).
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ROOM FOR TINKERING
So, I would not be surprised if the USDA slightly increases their forecast of U.S. production. Such tinkering is common. Historically, the final estimate of U.S. all cotton yield averages about 6 percent higher or lower than the initial August-based forecast. Just for reference, a 6 percent adjustment to a 15.9 million bale crop is 954,000 bales. So, the USDA has a lot of room to tinker, historically speaking.
The market implications of all this may be mixed. A healthy-sized crop, with a potential shortage of good color grades, may create more complicated dynamics with an over-supply of discounted fiber, while the good grades get bid up in value.
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