Cotton industry analysts said on Wednesday the trade will be look closely at consumption estimates when the US Agriculture Department releases its monthly supply/demand report on Friday. USDA will release the report at 8:30 am EDT (1230 GMT).
Most in the trade expect a small reduction in the estimate for the US cotton crop, which they feel should range from 13.2 to 14.2 million (480-lb) bales. Last month, the USDA pegged the US cotton harvest at 13.77 million bales. "The market doesn't want to be tuned into the supply thing. It's all about demand," Keith Brown, president of commodity firm Keith Brown and Co in Moultrie, Georgia.
The worries over demand are fuelled by the belief that global economic turmoil could zap cotton consumption. "Defining consumption is far more difficult as we cannot pinpoint when (timing-wise) the US/European economies will perform an about-face and jump start consumer spending," said a report by Sharon Johnson, cotton expert for First Capitol Group in Atlanta, Georgia.
She added that there are a "myriad of reasons behind the near recessionary conditions that are likely to get worse before they get better which will further reduce cotton consumption."
Combined with the gyrations of the dollar and investment and hedge funds exiting most commodities, cotton prices have been battered to their lowest level since late 2007. Most in the trade also do not expect the USDA to accurately assess the extent of the damage inflicted by a string of storms that have hit the southern US Gulf Coast region during this year's annual hurricane season.
John Robinson, an economist with the Department of Agricultural Economics at Texas A&M University, said that poor weather in the premier West Texas cotton growing area should cut the US cotton harvest to around 13.2 million bales. Analysts said the even if the report should give a boost to cotton futures, demand fears and a commodity-wide sell-off which led investors to exit the commodity sector will probably dominate business.
"This (report) is only good for the initial reaction," said Mike Stevens, an analyst for brokers SFS Futures in Mandeville, Louisiana. He added the data may have an impact for all of 10 minutes and then focus on something else. John Flanagan, an analyst for brokers Flanagan Trading Corp, said the price of cotton "is now controlled by hedge funds and so it will depend on how they react.