Cotton Situation And Outlook

Jun 30, 2015

By Ronnie Barentine

Georgia Acreage. In March, Georgia farmers said they “intended” to plant 1.1 million acres compared to 1.38 million last season. The first USDA estimate of actual acreage planted will be released on June 30. The crop lagged behind normal in being planted but, for the most part, weather conditions have thus far been conducive to having a good year.

I expect the June 30 number to likely be 1.1 to 1.2 million acres. I don’t think it will be higher than this and it could be just a bit lower. Peanut acreage may come in higher than currently estimated and will be a big factor here.

US Acreage and Production. US acreage “intentions” were 9.55 million acres—down 13.5% from last year. It is widely anticipated that the “actual” number on June 30 will be 9.1 to 9.3 million acres. The market most likely already has this number factored in to its psyche.

The 2015 crop is currently estimated at 14.5 million bales—down from 16.3 million bales last year. This is based on a yield of 809 lbs/acre and acreage abandonment of only 10%. These numbers may not change much until USDA’s August reports—the first of the year to be based on actual farmer survey. Given the mostly favorable moisture and growing conditions across the Cotton Belt and especially in Texas compared to previous year, yield could be higher than currently estimated and the US still make a crop of 14.5 million bales or higher even with lower acreage. This is likely one reason why the market thus far has failed to respond to the likelihood of lower acres.

Global Factors. China continues to be a big unknown. China holds 60% of the World’s record amount of “stocks”—cotton left over from previous years production. World stocks are currently equal to almost a full years use by mills. In other words, assuming all that cotton were of needed quality and could be used where needed, there is enough cotton to run the World’s cotton spinning mills for a year without any new crop being produced.

But, the quality of China’s cotton is, in fact, a big unknown. Last year China announced it would limit imports of cotton and just recently announced it will once again begin to sell some of this cotton held in government reserve. At present, the market is fueled by things yet unknown. In time, we will see what actually transpires. The quality of China’s stocks is thought to be not good—some of this cotton is 3 or more years old.

India is becoming more of a factor. India is now the World’s largest producer. There has been much in the news about the “weak” monsoon season this year. This could mean a lower than expected India crop; but, again there is much uncertainty.

Price Outlook. 2015 crop prices have been stuck in a 5-cent range of mostly 62 to 67 cents for the past 9 months. The market has been ignoring the potentially bullish factors out there and under the circumstances, not much is going to change until more facts are known to substantiate a move up or down. A move to 70 cents is possible on bullish facts. A move to 58 to 60 cents is possible on bearish facts.

What To Do. I have suggested growers wait on a move to 70 cents. But patience is wearing thin as time marches on. The only alternatives would be to purchase Put Options or use a Minimum Price Contract or a Fixed Price Contract followed by purchase of Call Options. Otherwise, contract some portion of the crop or continue to be patient. Marketing is about managing risk, not getting the top price.

There are other things that can help that growers need to do if possible:

Try to keep costs down. Don’t sacrifice yield, but evaluate the cost-benefit of every dollar spent.
Don’t skimp on things that have a high return. Don’t cut costs just to be cutting cost.
Premiums for quality have been very good and are expected to continue to be good. Do things that make and preserve fiber quality—don’t lose the bottom crop, control stink bugs and other insects, control growth and use PGR’s to encourage boll production, defoliate at the optimum time, timely harvest.
Know how the Loan works. Be prepared and know what to do and when.

Policy/Economic Concerns. There are industry concerns about how cotton can compete under this new farm bill—combination of low prices, ARC/PLC incentives for other crops, and related flexibility/competition provided by Generic Base.

Source:uga.edu