By Leslie Josephs
--Growers backed out of contracts when prices were high
--Noble was forced to cover physical deliveries by purchasing cotton in the spot market
--Noble reported net loss of $17.5 million for the third quarter
NEW YORK (MarketWatch) -- Volatile cotton prices and growers backing out of contracts contributed to Noble Group Ltd.'s third-quarter net loss, the Hong Kong-based commodities trade house said Wednesday.
Cotton prices on the ICE Futures U.S. touched an all-time high of $2.27 a pound earlier this year as bad weather and export restrictions looked set to cap supplies.
"After the unprecedented increase in cotton prices, there was a level of systematic default by farmers particularly in the U.S., forcing Noble to have to cover physical deliveries to customers by purchasing cotton in the spot market at elevated prices," Noble said in an earnings release.
Cotton prices have since retreated to just below $1 a pound. The volatility has led to a record number of disputes along the supply chain, from farmers to merchants to textile mills.
Noble reported a net loss of $17.5 million for the third quarter, compared with a net profit of $157.2 million a year ago.
For the nine months to Sept. 30, Noble said volumes in its cotton division fell 22% "despite record revenue."
Noble isn't the only commodity trade house to point to delivery problems from U.S. producers.
In February, a letter signed by Allenberg Cotton Co., a unit of commodities merchant and trader Louis Dreyfus, accused some of the farmers from whom it buys cotton in the U.S. of intentionally delivering less than they had produced.
"We believe there is, but cannot yet prove, incidence of producers...who have engaged in deliberate underdelivery," said the letter seen by Dow Jones Newswires.
Allenberg said in its letter that it had received "virtually no reports from co-op members or gins that yields were slipping."
Glencore International has said the price volatility during the first half of 2011 "resulted in an industry-wide environment of elevated contract performance risk and Glencore, along with many other merchants, incurred 'opportunity costs/losses' associated with various suppliers not meeting their delivery commitments."
