Heavy rainfall and flooding in U.S. Southeast lead to rising cotton price

The most-active cotton contract with a December 2015 maturity date gained by nearly 3% yesterday to reach just shy of 62 US cents per pound and has thus distanced itself somewhat from the contract low of 60 US cents it hit in September. The extreme rainfall and flooding to hit the US Southeast in connection with Hurricane Joaquin have not left the region's cotton-growing areas unscathed - this applies particularly to the growing areas in South Carolina. 

Although these account for less than 5% of the US cotton acreage, they are nonetheless of considerable importance due to their proximity to the US processing industry. Heavy rainfall and flooding can result not only in reduced crop volumes but can also impair quality. Excessive rain and too little sun can for instance lead to discolouring of cotton once the cotton capsules have opened. 

Even before the latest events, the US Department of Agriculture had been anticipating an 18% lower US cotton production in 2015/16 after the acreage had been reduced by 22% in response to last year's negative price performance, says Commerzbank. Worldwide production also looks set to decline further, giving rise to the first deficit on the global cotton market in six years. This is expected to lend support to prices, though the high international stock levels should preclude any excessive price buoyancy, added Commerzbank.