US cotton production up

Ideal weather should jack up the US cotton crop, but sky-high energy prices and a credit crunch which shook financial markets could hit demand, analysts said Friday in forecasting next week's USDA report. The US Agriculture Department will release its monthly supply/demand data on Tuesday at 8:30 am EST (1330 GMT).
Most analysts forecast the US 2007/08 cotton crop to rise to between 18.95 million and 19 million (480-lb) bales, versus last month's USDA estimate of 18.86 million bales.
"Texas accounts for most of the increase with its production of 8.127 million bales and a yield of 830 lbs per acre," Sharon Johnson, cotton expert for First Capitol Group in Atlanta, Georgia, wrote in a report. "That crop is absolutely tremendous, high yielding and very high quality," added Mike Stevens, an analyst with brokers SFS Futures in Mandeville, Louisiana.
Texas is the nation's top cotton producing state. Cotton farms in the state have often been plagued by drought, but this year they have received plenty of rain. Yields in several US cotton producing areas were at or near all-time records. The only states which suffered from drought were Florida, Alabama and South Carolina.
DEMAND MAY WEAKEN: Analysts said most of the trade will not be paying too much attention to the US numbers in the USDA report. That's because one of their chief concerns will be the impact of global economic turbulence on demand.
Johnson said a combination of "high energy prices, (the) US-driven credit crunch, disparity among currencies...are all having a negative impact on world usage in key countries and regions of the world."
A tightening in China to contain and curb inflation could eventually hit the textile industry there given its excessive investment and over capacity, she added.
Stevens said China holds the key to world numbers, and a reduction of as much as 2.0 million to 3.0 million bales below USDA's current numbers of 35.5 million bales is in the offing. "However, cuts in the Chinese crop will quite likely be at least partially offset by reductions in their import needs," he said.
For India, John Flanagan of brokers Flanagan Trading Corp said that in line with a USDA attache's report, Indian production should rise by 400,000 bales from USDA's November projection of 23.5 million bales. The increase in India may be offset by a cut in Pakistan's crop, with Stevens saying a reduction of 750,000 bales to 9.0 million bales might be in line.
Despite the questions over demand and China, the longer term outlook for cotton remains promising because US cotton acreage in 2008 is expected to go down given robust prices for wheat, corn and soybeans. Johnson said new-crop cotton prices for the following season should stay strong since grain prices are quite high and that "will inevitably spill over to cotton."