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“We’re at a point now to where you really have to make careful decisions about selling your crop because you’re well above the loan rate and you won’t have that to fall back on — it’s a riskier environment,” said Don Shurley, University of Georgia Extension economist.
Even though cotton prices remain relatively high, the marketing environment for producers is riskier than it’s ever been.
“We’re at a point now to where you really have to make careful decisions about selling your crop because you’re well above the loan rate and you won’t have that to fall back on — it’s a riskier environment,” said Don Shurley, University of Georgia Extension economist, speaking at the recent Southern Region Agricultural Outlook Conference held in Atlanta.
If you compare the last two years with the previous nine or 10-year period, in terms of making marketing decisions and managing risks, it’s a whole new ballgame, says Shurley.
To illustrate his point, Shurley looked at data going back to 2000, including the December futures and the daily highs and lows during the January through November selling period. He compared these numbers to the loan rate.
“This gives us an average of about 60 cents, and that’s based on quality and the average basis in the Southeast. The way the marketing loan works on cotton, with the basis in the Southeast, a farmer pretty much is guaranteed about 60 cents — that’s the worst-case scenario. This is if you sit around and do nothing all year and then at harvest sell your cotton and take your POP payment,” he says.
In the past, that strategy typically has resulted in a price of 60 cents, based on the loan rate.
“The point is if you look back prior to 2010, your consequences of doing nothing or making the wrong decision were really minimal. The marketing loan was there to provide you roughly 60 cents anyway,” says Shurley.
But the past two years have brought a different environment, he says.
“If you look at the last two years, we’ve had significantly stronger prices, though we’ve seen some adjustments and probably will continue to over the next year. Even though prices have been higher, it’s a new environment simply because of the range and variability today. The variability is the result of global economic uncertainty and other factors.”