John Robinson, Extension economist, cotton marketing, Texas AgriLife Extension
The National Oceanic and Atmospheric Administration’s Climate Prediction Center has issued a La Niña advisory. This is part of the recurring El Niño-Southern Oscillation climate pattern and means the equatorial Pacific Ocean is cooler than normal.
This cooling is associated with drier-than-normal weather in U.S. cotton-producing regions, especially the Southern Plains region, which has a drier climate on average. The current La Niña conditions are predicted to persist through the winter before likely transitioning back to ENSO-neutral, or normal weather conditions, by early spring.
The U.S. Drought Monitor, published by the University of Nebraska, is already showing widespread dry conditions across the U.S. Cotton Belt. A relatively dry winter could spread and intensify the current drought conditions.
The earliest cotton planting in Texas might be directly affected by drought and lead to poor germination, low emergence and incomplete stand establishment. All of this could contribute to above-average abandonment, reducing harvested acreages and resulting in tighter supplies and volatile prices.
Of course, the same thing could happen to later-planted cotton, too. But the possibility of a switch back to ENSO-neutral, normal weather also raises the risk of unexpectedly higher production. La Niña droughts in the wintertime are historically associated with increases in planted cotton acreage. This could act like a bait-and-switch if more cotton gets planted, and then timely rains germinate all of it.
It would take a lot of timely rains to heal a drought, so the cotton market would be reacting, rain by rain, to an unfolding situation with both upside and downside production risk. It may take all summer for the outcome to become clear.
It is also unfortunate that the main hope for higher prices is from the risk of lower production. “Weather markets” like what I have been describing may involve rallies to higher price levels, but this price behavior often comes and goes, like the La Niña pattern. Sustained higher prices requires improved demand, which is not in evidence.
For additional thoughts on these and other cotton marketing topics, please visit my weekly online newsletter at cottonmarketing.tamu.edu.