The US Agriculture Department's monthly supply report should show another cut for the drought-stricken US cotton crop, but traders said Wednesday the focus would be fixed firmly on demand in the 2011/12 season. In a poll by Thomson Reuters, market participants expected domestic cotton production in 2011/12 (August/July) would be reduced to an average of 15.29 million (480-lb) bales, down 15.5 percent from last season's 18.10 million bales.
Traders and analysts said American cotton was hit badly by the worst drought in a century in Texas, the country's top cotton growing state. But they said the focus of the market would be on how badly demand for cotton was hit after prices rallied earlier this year to a record above $2 per lb.
"If you don't have adequate demand, then one bale of cotton is one too many," said Keith Brown, president of commodity firm Keith Brown and Co in Moultrie, Georgia. The cotton market has also been dominated by turmoil in global financial markets, especially after the US credit downgrade late last week.
Sharon Johnson, senior cotton analyst at commodities brokerage Penson Futures, said in a report it may take a few months before demand is known as USDA refines its figures. Traders said USDA may reduce its estimate for world 2011/12 cotton consumption.Last month, it forecast cotton usage at 116.75 million bales, down 2.2 million bales from the preceding month's forecast.