Have U.S. cotton producers been too hasty in their plans for wholesale shifts to grain this season?

That’s a question many were asking after listening to Joe Nicosia, executive vice-president, Louis Dreyfus Commodities, speaking at an ag update meeting at the Mid-South Farm and Gin Show.

Nicosia’s analysis showed a return over variable expenses of $406 per acre for cotton, $388 for corn and $394 for soybeans in Arkansas irrigated fields.

For Georgia dryland, the returns were $225 per acre for cotton, $223 for corn and $185 for soybeans. The returns included cottonseed revenue.

“Don’t believe everything you read, which says the only thing you can plant is corn or soybeans, and everyone in the world should be doing it,” Nicosia said. “Take another look at your cotton numbers. We show it’s the most profitable crop to grow in the Southeast and depending on where you are, it’s the most profitable in the Delta. New crop corn is not $7, it’s $5.50.

Much of the newfound bullishness for cotton comes from the continuation of China’s policy to build its reserve of cotton.”

But there are concerns, including the possibility that China could one day become self sufficient in cotton. “That should scare you because they are your largest customer. They buy half of your exports and are the largest importer in the world by far. Next year, USDA projects they will grow 33 million bales and use 34 million bales, a deficit of one million bales. That’s the worry. If we allow polyester to take over cotton’s position, and we lose the largest buyer in the world, what do we do.”

For the moment, opportunity is knocking.

“China is willing to support the price, they’re willing to hold their stocks and they’re willing to allow their mills to buy competitively-priced cotton. They want it, you got it. As cotton moves into the mid-80s, it’s giving you a real opportunity.”

Nicosia added that speculators “are highly invested in this marketplace. They’re going to continue to push, and until we get rain in west Texas, they’re going to try to keep prices up. Use that as your opportunity. Look to price your cotton and buy some protection with call options. They’re not that expensive versus the risk.”

Cotton’s falling blend percentage is the industry’s biggest challenge today, and China’s cotton reserve policies are much to blame, according to Nicosia.

(See Winning the blend in China is big for U.S. cotton growers).