Cotton Surges as USDA Cuts Forecast for Domestic Crop on Drought

Cotton futures jumped to the highest in almost five weeks after the government cut its forecast for output in the U.S., the world’s leading exporter.

In the 12 months starting Aug. 1, American farmers may harvest 13.5 million bales, down from 14 million projected last month, the Department of Agriculture said today. On average, analysts expected 13.98 million bales, a Bloomberg News survey showed. Domestic output will drop 22 percent after a drought hurt crops. The agency also boosted its export estimate for the current season and trimmed its projection for stockpiles.

“The U.S. numbers, in particular new-crop, are friendly, if not bullish,” for prices, Sharon Johnson, a senior market specialist with Knight Futures in Roswell, Atlanta, said in an e-mail.

Cotton for December delivery surged 3.4 percent to settle at 88.07 cents a pound at 2:34 p.m. on ICE Futures U.S. in New York. Earlier, the price reached 88.18 cents a pound, the highest for a most-active contract since May 9. In the past 12 months, the fiber climbed 28 percent.

The USDA projects global stockpiles by July 31, 2014, at 92.49 million bales, up 8.9 percent from the current season, led by inventory gains in China, the biggest importer.

The higher U.S. prices may “hurt demand, assuming foreign supplies can make up the difference,” Johnson said.

Cotton is the biggest gainer this year among the 24 raw materials tracked by the Standard & Poor’s GSCI Spot Index. A bale weighs 480 pounds, or 218 kilograms.

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