"Following that first and second quarter spring volatility, I would expect a gentle trend lower in the second half of the year. That's the usual pattern in years in which we have a stable carryover. I can see it trending down in the third and fourth quarter into the low 70s."
An expected rise in cotton acres and production in the United States and around the world could weigh on cotton prices this year, meaning producers need to take advantage of pricing opportunities when they can, say analysts speaking at the Ag Market Network’s January teleconference.
Texas A&M Extension Economist John Robinson says he expects U.S. cotton growers could plant as much as 10 million acres in 2010, which would produce a crop of about 15 million bales. “If we export 12 million bales, we wind up with very little change in ending stocks. That suggests a historical pattern of our normal sideways spring volatility and perhaps the peak for December 2010 will come during that period. I would expect to see the December 2010 contract trading from a high of 80 cents or higher if the funds rev it up.
“Following that first and second quarter spring volatility, I would expect a gentle trend lower in the second half of the year. That’s the usual pattern in years in which we have a stable carryover. I can see it trending down in the third and fourth quarter into the low 70s.
“I could paint a worst-case scenario if there is a large increase in acreage worldwide. If we all enjoy really good weather like we did in 2007 and have a really good supply, and demand remains fuzzy due to a lingering recession, we might see cotton prices move from the upper 70s into the mid-60s. Neither scenario really seems all that bad compared to price patterns of the past.”
Texas A&M University Professor Emeritus Carl Anderson says projected acreage increases in foreign countries “is worrisome for world supply. We’re looking at a world supply of cotton that is about adequate. We have a 45 percent stocks-to-use ratio, a 50-million bale carryover worldwide.
“If we do get U.S. acreage up to 10 million acres, that leaves the door open for a 14-million to 15-million bale crop. With offtake about the same as production, our carryover stocks would be very near where they are now. Should weather enter the picture, we could see some rallies along the way. The thing to watch is whether the market has the momentum in February and March to break the 80-cent resistance barrier. If it does, it could really open the door for some pricing opportunities.”
Mississippi State University Economist O.A. Cleveland expects an increase in Mid-South cotton acreage this spring, due to a corn/cotton price ratio that is favorable to cotton “and because of the disastrous soybean situation we had as well. We’ll see a very good increase in Missouri, Tennessee, Arkansas and Mississippi. As we move into the south Delta, we won’t see as much of an increase there. The corn tended to be better there. Louisiana won’t see a large change.”
Cleveland doesn’t believe Southeast cotton acreage “will be up as much as the 20 percent as some have projected, but I think we’ll see a 10 percent to 15 percent increase. If we get open weather in February, I would tend to think it will boost our intentions a little more, which would start to weigh on the market.
“My thinking is that we have probably seen the cotton price high for the year, nonetheless, we could see a bump, depending on the U.S. and world weather situation.”
Cleveland doesn’t see much happening on the demand side for cotton, although world economies “are doing much better. But we will see a spring rally, and we could see something as high as 78 cents or 79 cents. I do not look for that to stay around. I certainly would not wait on that price before I plant cotton.”
Cleveland urged producers to not look at price goals. “We have to understand our cost of production and what our profit potential is.”
Cleveland is optimistic about cotton’s prospects. “We all feel better about cotton. We all feel that cotton will come back. We won’t be as strong as we were, but we don’t need to be.”