The argument that cotton prices have to rise to buy acres from corn is losing steam because of slowing cotton export demand and huge U.S. stocks, said cotton market analysts at the Ag Market Network’s February teleconference.

Instead, the new reality is that unless demand picks up considerably, U.S. cotton producers must cut at least 2 million bales of production this year.

USDA’s February wrap-up of world cotton supply and demand pegged U.S. ending stocks at 8.3 million bales, “which really takes the wind out of the bull argument,” said Mike Stevens, Swiss Financial Services, Mandeville, La.

“Stocks are now at a 21-year high and the stocks-to-use ratio of 43 percent is the highest since the 1988-89 marketing year. Traders are now fearing we could get stocks to more than 10 million bales unless we can get some very large Chinese purchases pretty soon.”

Stevens said global fundamentals “are pretty much in balance, with the United States carrying the world’s excess supply. However, with the loan carrying the bulk of the U.S. crop, forfeitures are going to come into play at some time in the future. This can cause some short-term tightness. We need some sales on the books.”

“This month’s USDA report brought home the reality of an export-dependent market,” added Carl Anderson, Texas A&M professor Extension specialist emeritus. “We are restructuring the U.S. cotton industry, and we really need to pay attention to what we can do to help us maintain a price that will pay our cost of production.”

Anderson says a reduction in 2007 U.S. cotton acreage of about 20 percent from last year is needed. “The sooner we do it, the better. From my view, it looks like Texas is going to take more acreage out than what the National Cotton Council survey showed, perhaps down to 5.6 million to 5.7 million acres.”

Worldwide, the combination of slowing sales to China, and India’s emergence as new supplier are big concerns in Anderson’s eyes. “We need China to purchase another 6 million or 7 million bales to clear out our loan cotton and hold our carryover from growing even larger. But reports that China is slowing down its textile exports is keeping things on the weak side.”

India’s domestic cotton industry has “found keys for increasing production with new cotton varieties that have boosted yields 30 percent or more. India now has a 21-million bale crop. It is using only 18 million bales and has an 8-million bale carryover from last season. So its plans are to export about 5 million bales. Those bales right now are very competitive with U.S. export sales.”

Stevens said more disturbing news he’s heard out of China “is that the government is going to allocate some ($64 million) to subsidize its domestic producers to plant better-yielding, more expensive varieties of cotton. That does not augur well for us.”

The problem isn’t going away anytime soon, according to Anderson. “We have a 23 million bale equivalent in domestic cotton demand in the United States, but only a 4.5 million bale domestic market for our cotton. So we’re going to have to put our heads together. We need several blue ribbon committees of cotton industry folks to figure out how we get out of this situation and not lose anymore of our industry.”

Meanwhile, cotton prices have to stay low or go lower in the short-term.

Stevens says there’s a downside possibility of December 2007 at 55 cents in the short-term. “Once we get some stability and a piece of good news, there’s a good chance demand will start to kick in and December could be right back at 60 cents.”

Anderson’s short-term outlook is for December 2007 to move much further from where it is now. “Here we are with a carryover of over 8 million bales and with over half of last year’s crop in the loan. We have a weak market in the short-run, maybe until August. It will take lower prices to move it out.”

Anderson sees December rolling back to the 55-cent level. “It’s going to take an acreage report that we have planted only 12 million acres of cotton to move December up to 60 cents. But right now, it looks like low prices are needed to get things started and it may have to go lower.

“The bottom line is that we need to make an 18 million bale crop. Anytime we produce a 20 million bale crop we have a tough time using 5 million at home and exporting 15 million bales. The range I see is from 50 cents to 60 cents.”

Stevens says if China comes back after the Chinese New Year looking for large purchases, “then we’ll be back in the game again, and the market can turn around.”

Stevens says U.S. producers need to cut at least another 500,000 to 750,000 acres off the National Cotton Council’s planting intentions estimate of nearly 14 million acres, something he says is already occurring. “Indeed cotton acres are probably being lost on a daily basis as cotton price performance continues to lag behind that of competing crops.”

Stevens is referring to grain prices which are in the midst of an historic bull run that could last a few years.

“The industry and producers need to take advantage of these opportunities if you have the seed to plant corn and the storage facilities,” Anderson said. “Think about building more grain facilities in the areas where there is not enough storage. It’s not a good thing necessarily, but it looks to me like we’re going to be shifting marginal acres out of cotton at a faster pace than we have in the past 20 years.”

e-mail: erobinson@farmpress.com