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Growers need to realize that cotton prices are in a cycle. They don’t just go up and stay there.
In less than nine months, says Arnold, prices went to the low-40-cent range. In early 2001, prices were up in the 70-cent range. But 10 months later, they were at 28 cents per pound. In 2003, prices were 85 cents per pound and once again everyone was talking about China and demand. Ten months later, prices were 42 cents per pound, he says.
China is the common denominator in all of these scenarios, he says. “China may pay through the nose for cotton this time, but ultimately, the house always wins. We have to rely on exports in the United States, so China and all of these other countries are the ones we rely on the most, says Arnold.
High prices bring on more acres, and more acres generally bring on more supply, he says. “More supply usually puts a damper on prices. At the same time, low prices decrease acres, decreased acres lower supply, and low supply ushers in high prices. It’s a cycle. It’s my opinion that this time next year, we’ll be wishing someone had hit us in the head with a two-by-four and made us lock in $1.10 cotton. It’s not the same situation this year as last year.”
Brazil just came out with its official numbers, says Arnold, and cotton acreage increased by 60 percent. Also, Argentina increased by 45 percent. “Australia had cut back on its cotton for several years, and it has increased acreage by 200 percent. That cotton is now in the ground and will be harvested at about the same time we’re planting.”
It’s important to remember that the situation is not the same as last year, he says.
“Many of us got burned on forward contracting last year, but I think we should take a long look at pricing this year. Our tendency, for most of us, is not to forward contract this year if we got burned doing it last year. We could easily be looking at an LDP situation in 18 months or less. I’m not forecasting that, but we need to be aware of the supply/demand situation.”
Another factor to consider is that the United States has been in a recession, notes Arnold. “People have to eat, but textiles will be the first to get hit if the economy slows again. The economy is in a very fragile situation right now. Energy prices are going up as well. Prices will impact demand, and people will cut back. And when they do, there’s a ripple effect, and farmers will be affected.
“If the United States increases cotton by 25 percent, and all other countries plant cotton wall to wall, and because of inflation the economy slows down, we could easily be in a glut situation in cotton. We could go from a situation of under-supply to an over-supply in 18 months. That could happen. I’m not saying it will, but we need to be prepared for these things.”