Cotton market impact from Hurricane Harvey likely will be “subtle,” and limited, “no more than a penny or so on the base price,” says Texas AgriLife Extension cotton marketing specialist John Robinson.
But growers could see cash market offering improve for good quality cotton. He also notes that “losses are augmented by wrecked modules.”
“The affected cotton growing regions include the Upper Coast and Lower Blacklands,” Robinson reports in his latest newsletter (http://cottonmarketing.tamu.edu/). “I have heard estimates of those regions only being between 30 percent and 40 percent harvested,” he says. “I have also heard 300,000 to 400,000 bales worth of cotton still on the stalk in the affected region. Assuming those estimates are correct, there are a number of possible outcomes.”
He says some exposed cotton “will be obliterated by high winds. Those growers will face a 100 percent loss, and likely have an insurance claim on that basis. Second, some fields will face a lot of wind and rain damage, but still face the uneconomical task of drying out, harvesting, and selling degraded cotton lint at a heavily discounted price. Either one of these outcomes will be a disaster at the farm level.”
Robinson says loss of 300,000 bales, in market terms, will not be significant enough to move the market much. Futures have gone up, but he expects it to “settle down once the uncertainty fades from this event. The main aggregate market effect will be figured into the cash market with higher premiums being offered for scarcer good quality cotton for the next couple of months.”
He classifies Hurricane Harvey, in terms of cotton markets as “a more acute and concentrated and dramatic example of the extended weather uncertainty that the market has faced all summer.”
Marketing strategies going forward should center on preparation to make a move “to quickly take advantage of any unexpected price rallies. Forward contracting and/or various options strategies can be used to limit downside risk while retaining upside potential.
Source: http://www.deltafarmpress.com/cotton/cotton-market-movements-likely-be-subtle-following-hurricane
