With December 2010 cotton futures around 78 cents in mid-May, producers should be looking closely at pricing 50 percent or more of their new crop cotton, said market analysts speaking at the Ag Market Network’s May 13 teleconference.
“This is a really good area to have a percentage of your crop done,” said Mike Stevens, Swiss Financial Services. “We’re at the highest levels on some of the contracts in 12 years in the north Delta. You need to be taking advantage of prices around 78 cents.”
“Prices usually don’t stay up here very long,” said Texas A&M Extension economist John Robinson. “You have to put a pencil to your cost structure, but 78 cents is probably a profitable level, and producers should be taking advantage of it, instead of holding off thinking it’s going to get better.”
Longer-term, Stevens believes that December 2010 futures “are within 2 cents of the top. As a matter of fact, for futures to get above 78-80 cents, it’s going to take something unusual happening. I’m looking at a downside of 73 cents.”
Texas Extension economist Carl Anderson sees December 2010 futures ranging from 75 cents to 78 cents. “At 75 cents you have a pretty good floor, but it could drop to as low as 72 cents. These are times when we all get surprises. I encourage producers to implement a pricing system to protect themselves on at least 50 percent of their expected production, and I wouldn’t have a problem going up to 75 percent.”
Robinson sees a top of 80 cents “but until we see how much cotton is planted in the world, I’m a little more pessimistic on the low end. We could go down to 70 cents or below if they’ve planted a world of cotton out there and we have some decent weather.”
While USDA pegged the U.S. cotton crop at 16 million bales, “there are some guesses out there that put it at between 17 million and 18 million bales,” Stevens said.
Stevens noted that export sales of U.S. cotton remain strong, with a total of 377,000 bales sold the first week of May. “The figure includes 261,000 bales of current crop, which runs through July, and 116,000 bales of new crop. To reach our 12 million bales of projected export shipments, we don’t have to sell but 100,000 bales a week.”
Stevens reported that Chinese domestic cotton prices spiked in early May, which is probably why the government is allocating a 1.1 million ton import quota, which is roughly equivalent to 5 million bales. “This is a welcome situation. They have to get those import quotas in place before they can buy much of anything.”