Whether high cotton prices of 2010-11 deferred cotton demand, or destroyed a portion of it, is an uncertainty the cotton market will tackle in the coming months, according to Joe Nicosia, CEO of Allenberg Cotton Co., featured speaker at the Cotton Roundtable in New York City in July.

Nicosia said during the event held at the Intercontinental Exchange in Downtown Manhattan that 3 million to 4 million bales have been replaced with polyester in response to record high prices in 2010-11. It amounts to a 2 percent to 3 percent change in the cotton-to-polyester blend percentage.

“Now that cotton prices have fallen back and are much closer to polyester prices, will some of this demand come back to cotton? Or will consumers find manmade fibers acceptable now that they’ve tried them in alternative applications. How much has been deferred and how much has been lost.”

Nicosia said the market performed as it needed to in 2010-11 with prices climbing high enough to produce “a needed downward shift in the demand curve for cotton to get us through extremely tight stocks.”

High prices shrunk demand by about 7 million bales — to around 113 million bales — to match the smaller supply, Nicosia said. Now the market has three issues to resolve — regain its market share from polyester through either consumer demand or price; regain overall demand hurt by the high prices; and figure out how to regulate the market in 2011-12.

On the latter, Nicosia said, “If prices get too low versus corn, wheat and soybean prices, which are substantially higher, we know what will happen to our cotton acres. The market must be careful to not make the same mistake it made in 2006-2009 when we lost 40 percent of our cotton acreage, and then we had the largest bull run in history.”

As for supply, Nicosia said the world has planted enough cotton acres this year “to handle a disaster of the proportion it has seen in Texas, but it cannot handle a second one. If production in the United States varies 5 percent to 10 percent up or down, we believe the outcome in prices could be as much as 50 cents. In that type of scenario, we think it is very prudent for growers to maintain upside insurance via use of the options market by buying calls once they have sold their crop.”