The direction for December 2009 cotton futures could hinge on when and how much rainfall falls on the state expected to plant the most cotton acreage — Texas, said market analysts at the Ag Market Network's March teleconference.
Texas A&M Extension Economist John Robinson says most of the cotton production areas in the state to date have received less than a half-inch of rain in the last several months.
If Texas remains dry, the chances are greater that it will be planted to cotton , “due to a combination of agronomic and insurance advantages that cotton has. There is still a lot of time between now and planting cotton time in west Texas, but if it stays dry, we'll have more acreage than stated in the intentions (4.5 million acres, according to the National Cotton Council), and we'll have a lot higher abandonment that what USDA projected at (its outlook conference in February).”
Another factor is that continued dryness has put much of the state's wheat crop behind in development. “How much of that will be zeroed out and put into cotton is anybody's guess.”
Mike Stevens, with Swiss Financial Services says USDA's March 11 Crop Production Report and World Agricultural Supply and Demand Estimates, was neutral for cotton prices.
In old crop cotton, USDA reduced domestic production by 200,000 bales to 3.7 million bales, but raised the export projection by a half-million bales to 12 million bales, lowering U.S. ending stocks to 7.3 million bales, which is down 400,000 bales from the previous month.
USDA also cut world production by 800,000 bales to 108.65 million bales and world consumption by 1.5 million bales, which raised world ending stocks by around 700,000 bales.
Stevens noted that China's cotton crop was reduced by 700,000 bales, which would have been a good sign for U.S. exports if they hadn't cut China's usage by 500,000 bales.
Stevens says the cotton market “seems somewhat subdued compared to other markets. We're way past due for a rally from our oversold conditions. So far, the bears are still in control.”
But he did offer a ray of hope. “I'm not trying to be overly optimistic, but cotton moved almost 10 cents higher between the December USDA report and the January USDA report on the same bearish fundamentals. I can't see a lot of downside in the market, at this point.”
Stevens says the best chances for December 2009 prices moving higher would develop with a cutback in cotton planting. “These are all big ifs, but cotton could move into the middle 50s if the grains perform well as we're moving into planting time in the Delta, and if we don't produce too big of a cotton crop. But a 7.2 million bale carryover is a lot of cotton.”
Robinson says December prices could spike into the upper 50s or into the 60s, “but I definitely wouldn't expect it to stay there.”
Mississippi State University economist and professor emeritus O.A. Cleveland doesn't see December 2009 getting above the high 50s. “I think we do crawl up into the low 50s on the low side. So much depends on what will happen with the weather. It could be so disastrous that December climbs into the high 60s, but that's not anything we can bet on right now.”
Cleveland says he's doubtful about USDA's new export number riding through the remainder of the season. “I'm still concerned it will slow down somewhat. We may see some cancellations.”
On a brighter note, Cleveland says negatives like carryover, export and domestic use numbers “have now been built into this market. That will give us some stability in the market.”
Unless there is a problem with the Texas crop, “we're probably going to stay mired in a trading range of 39 cents to 46 cents on the nearby contract,” said Jarral Neeper, vice-president of marketing for Calcot. “Likewise, December will struggle between 46 cents on the low side and 52 cents on the high side. I can't help but be a little bit friendlier as we go forward because the economy isn't going to stay depressed forever.
“All the money floating around out there could really do something for the entire commodities complex, especially on the grain side as they're trying to get these ethanol percentages raised.”