Will cotton prices rebound in 2008? Or will it be 2009 before the market moves high enough to bring more acres back to the U.S. crop?
That’s a question that has been weighing on the minds of ginners, consultants and, yes, longtime cotton producers this winter as they follow rocketing corn, soybean and wheat prices. (August beans were trading at $13.23 per bushel at this writing.)
For now, the consensus seems to be U.S. growers will plant fewer acres of cotton in 2008 unless December cotton futures can get past 80 cents per pound, something which hasn’t happened since October 2003.
“Forecasting 2008 U.S. planted acreage is extremely difficult with most analysts now in the 9-million to 10-million-acre range,” says USDA Fibers Analyst Carol Skelly. “The reason for the difficulty is the shifting relationships between the price of cotton and alternative crops, especially corn, soybeans and wheat.”
U.S. cotton acreage fell 29 percent after the demand for ethanol drove corn prices above $4 per bushel during the winter of 2006-07. Plantings were down across the Cotton Belt, but the brunt of the reduction occurred in the Mid-South and Southeast.
With corn prices scooting past $5 a bushel and soybeans finally in the teens in mid-January, cotton continues to face a tough row to hoe to get acres back, according to Skelly and other speakers at the National Cotton Council’s Beltwide Cotton Conferences in Nashville.
Gunnison, Miss., producer Kenneth Hood, former chairman of the NCC and former president of the Southern Cotton Ginners Association, said he wouldn’t be surprised to see the U.S. acreage drop to 9.5 million in 2008.
“A lot of the Delta’s acreage was planted to wheat last fall and most of that land will be double-cropped with soybeans,” he told an Associated Press reporter after he spoke at a Beltwide session on new harvest technology. “That ground won’t see cotton until next year, if then.”
Carl Anderson, professor emeritus with Texas A&M University, stirred some excitement by telling participants at the Beltwide’s Cotton Outlook Economic Symposium that, “under the right conditions,” cotton prices could reach 98 cents per pound in 2009.
“December 2008 has the support to continue increasing 5 to 10 cents per pound above the 76 cents posted the first week in January,” he said. “And, if prices for wheat, corn and soybeans remain relatively strong for another season, it is feasible for December 2009 futures to rally to 95 cents or higher next year.”
(Anderson made another observation that would have to give growers in the Mid-South and Southeast pause: Texas will plant more than half of the cotton acreage in the United States in 2008-09.)
As Anderson noted, cotton prices were significantly higher at 76 cents per pound basis December in mid-January 2008 than they were last spring. The problem is grain prices have risen even more.
“When compared with corn, cotton prices have risen slightly more, which suggests corn may be a less attractive alternative than it was a year ago,” said Skelly. (December corn jumped to $5.30 a bushel two days after she spoke, indicating how volatile grain prices have become.)
“On the other hand, soybeans and wheat prices have risen more than cotton prices and double-cropping of wheat with soybeans was especially attractive at fall planting time. There is no question a significant number of traditional cotton acres in the Southeast and Delta will be planted to alternative crops in 2008. The question is which ones?”
If U.S. cotton acres drop to 9.5 million this spring, that would be the smallest planted acreage in this country since the payment-in-kind program cut acres to 7.9 million in 1983. Planted acreage of 9.5 million bales would be down from 10.85 million in 2007 and 15.27 million in 2006, a decline of 38 percent.
The problem for U.S. producers is that although acreage has been falling, U.S. ending stocks have continued to rise due to better than average production years and a slowdown in Chinese imports of U.S. cotton. Ending stocks, which had remained around 5 million bales for several years, jumped to 9.5 million at the end of the 2006-07 marketing year (last July 31) and are expected to only decline to 7.7 million for 2007-08.
Reminding her audience that no survey-based forecasts will be available until the National Cotton Council’s releases its estimates in February and USDA its planting intention report at the end of March, Skelly said USDA has been working from a number of 10 million acres since last fall.
“Using this figure as a starting point, with abandonment rising to more normal levels, and yields approximately equal to those of the current season, the United States could produce 16.6 million bales, a reduction of 2.4 million bales from 2007,” she said.
“However, it is also important to recognize the downside risk for both area and yield. At planted area of 9.0 million acres, and a five-year average yield, U.S. production would fall below 14.5 million bales, or another 2.5 million, for a total annual reduction of nearly 5.0 million.”
The idea the United States could produce a much smaller crop than that which resulted from 2007’s record national average yield of 859 pounds of lint per harvested acre is not that far-fetched.
“When you go back to this time last year, the Lubbock, Texas, area had the best soil moisture it had in many years,” said O.A. Cleveland, retired marketing specialist with Mississippi State University. “They had great weather during the growing season — Lubbock did not record a day over 100 degrees in 2007.
“Now that soil moisture has been largely depleted. They may get some much-needed rains over the next few weeks, but this year is not shaping up to be the kind of year they had in 2007 when so many growers harvested nearly three bales per acre of dryland cotton.”
Anderson agrees that vagaries of the weather in Texas could hold a lot more sway in the cotton market in 2008.
“With about two-thirds of the acreage dryland, the cotton crop size is highly dependent on timely rainfall,” he noted. “Production in 2005 was 8.4 million bales, in 2006, 5.8 million; and in 2007, 8.1 million. In 2006, 2.3 million acres were abandoned due to drought. The U.S. crop can vary by at least 2 million bales, depending on good or bad growing conditions across Texas.”
Aside from the supply situation, the U.S. market will continue to be driven by exports, according to the analysts. The slowdown in exports to China in the last two marketing years kept U.S. cotton prices far from being competitive with U.S. grain prices.
That may not change much near-term. “Current purchases by the Chinese in the world market, especially purchases from the United States, indicate China’s imports will remain fairly weak through the first half of the season,” said Skelly.
“However, the China supply-demand balance sheet for 2007-08 shows that, with production about even with last season and consumption rising, China’s imports will likely rise to 14.5 million bales. Thus, we anticipate China’s imports will be concentrated in the second half of the season (February-July), as they were in 2005-06 and 2006-07. But the lag in activity casts uncertainty on the final outcome.”
Michael Whitehead, vice-president with Rabobank International’s Food & Agribusiness Research and Advisory team, says China’s cotton imports are forecast to rise about 50 percent to 17.5 million bales in 2007-08 as a result of higher textile production and stable crop production.
“Imports across the rest of the world are expected to fall by around 6 percent in the 2007-08 year to 24.8 million bales. Despite this, a question mark over the levels of Chinese stocks continues to provide uncertainty in import estimates.”