(Bloomberg) -- Cotton edged higher in New York as the production outlook tightens, though expectations for a global surplus are still keeping prices under pressure.
Futures have chopped since Monday when the US Department of Agriculture cut its estimate for world production, though output is still expected to be the biggest since 2018. The most-active contract rose as much as 1.3% on Thursday before paring some of those gains. That follows a two-day drop that took prices back near the lowest in almost four years.
The USDA’s trimmed outlook was driven by lower US cotton production, and forecasts could be lowered further in upcoming reports on dry weather in key US cotton-growing areas, Aurelio Pavinato, chief executive officer of SLC Agricola SA, said in a Thursday earnings call.
Only about 20% of US cotton production areas are affected by drought, but the share has risen in recent weeks, according to the US Drought Monitor.
The spinning industry is “operating strategically” and carrying materials at lower prices, Pavinato said. That is reducing future market liquidity and putting downward pressure on prices, he added.
Futures are down about 17% this year, and last week hit the lowest since October 2020. That’s as production is expected to increase by almost 6% in the 2024-25 season due to abundant harvests in large producers, including the US and Brazil, analysts at Fitch Solutions’s BMI unit said in a note Wednesday.
Meanwhile, demand will grow by a smaller amount as “the performance of the global economy represents a significant risk for demand,” the BMI analysts said.
--With assistance from Dayanne Sousa.
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