Wonder why cotton analysts keep stressing the importance of managing price risk in today’s cotton market? 

A good bit of it has to do with the international cotton market’s split personality. From one perspective, there is too much cotton. From another, too little.

Noted Extension professor emeritus Carl Anderson, speaking at the Ag Market Network’s February conference call said, “We have a division in our international cotton market which we have not had in recent times. The international cotton market is divided into China and the rest of the world.”

The problem is that China currently holds half of the world’s carryover and uses one third of the world’s supply, while the rest of the world holds the other half of the world’s stocks, and uses two thirds of the world’s supply.

“It splits the world into two parts, one where China has surplus cotton hanging over the market, while the rest of world trades a tight supply. This has certainly supported our market prices here over the last few weeks,” Anderson said.

Recent prices at the time of this writing, 82.74 cents for March and 83.27 cents for December, “is a lot better than what we were seeing last fall.”

Anderson adds that the cotton market should strengthen somewhat as planting time nears. “If it’s really concerned about acreage in the United States, it needs to hold its higher price and maybe inch up a little higher.”

The National Cotton Council’s recent survey of U.S. cotton producers estimates 2013 acreage at somewhere near the 9 million acre mark, compared to 12.4 million in 2012. “That’s about a 27 percent drop which is in line with our expectations,” Anderson said. “It’s also in line with our need to keep our supply from running away.”

Anderson says a 9 million acre planting would translate to a crop of around 13 million bales. “The smaller crop should satisfy demand without increasing carryover too much and help stabilize the price somewhere in the range of where we are now.”