Overall, commodity prices are still well below the 2008 peak, says Dale Cougot, senior economist for the National Cotton Council.

“Recovering global demand will push commodity prices higher, particularly oil. The Department of Energy’s latest projections call for oil prices to moderately appreciate, averaging around $79 per barrel for the remainder of this year and going as high as $83 in 2011.”

A number of commodities, such as cotton, can be extremely sensitive to changes in exchange rates, he notes. “The U.S. dollar is expected to remain relatively weak in coming months, particularly in emerging markets where cotton is purchased, which should be supportive of prices in the near future,” he said at the annual joint meeting of the Southern Cotton Ginners Association and the Delta Council’s Ginning and Cotton Quality Improvement Committee.

Except for a sharp dip in February, he says, cotton prices have stayed above 70 cents, with most of the activity between 74 cents and 80 cents per pound, and in late July gyrating around 73 cents.

“What the market is telling us is that a lot of cash in the funds has decided to go short. Once these technical charts get turned in a certain way, all of the electronic trading devices say ‘sell, sell, sell,’ and that will push the market down until the fundamentals come back into play.”

For the 2010 marketing year, Cougot says, the USDA’s projection is for 18.3 million bales of production, which would be 6.1 million above 2009. Mill use is stabilizing around 3.5 million. Exports, at 14.3 million bales, are strong compared to 2009’s 12.25 million, while U.S. stocks are at 2.9 million and estimated to rise to about 3.5 million at the end of July 2011.

“World production, at 116 million bales, is sharply higher than 2009, reacting to tight supplies — but more importantly, to 80-cent cotton. However, with only a modest increase in mill use to 120 million bales, the expectation is for stocks to continue to hold around 50 million.

“Currently, the A Index is hovering above 85 cents. New York futures prices have been in a sideways trading pattern, dancing around the 80-cent level.”

Based on the USDA’s estimate of 18.3 million bales of cotton this year, cottonseed production should be about 5.6 million tons, Cougot says. “Spot prices have softened from the 2008 highs, but are still above historical averages and have recently seen increases. Going forward, though, prices will be heavily influenced by the grain and oilseed markets.”

In coming months, Cougot says, factors to watch as influences on the cotton market include:

• The balance sheet of competing crops, not just cotton.

• Consumer confidence and growing demand.

• The status of the tax credit for ethanol, which could affect crop choices for growers.

• China, “with a focus on what they’re doing, not what they’re saying — especially when they start buying cotton.”

• Cash flow in the investment world, as funds start moving from bonds to equities and commodities.

And, he says, producers should monitor balance sheets for all crops to be sure “we don’t get so caught up in the technical factors that we end up being shocked by the fundamentals.”

e-mail: hbrandon@farmpress.com