Market faces uncertainty despite expected steady prices
Cotton has had its fair share of ups and downs over the years, especially in the past decade. Cotton farmers could see some short-term stability from 2012 to 2013, with cotton economists projecting a price range thatΆs very similar from last year. However, cotton acres are expected to be down big – by 2 million acres or more. What happened?
"Producers have a lot of flexibility in the West, Mid-South and Southeast with the other crops they are able to grow," says Gary Adams, vice president of economics and policy analysis at the National Cotton Council.
Because of that, changes in acres track very closely with market signals, he says. Right now, growing $14 soybeans or $8 corn is more lucrative than growing 70-cent cotton.
Any big price swings for the 2013 crop season could originate on the other side of the world, Adams adds.
"China is probably the biggest wild card right now," he says. "They buy a gigantic amount of cotton from the United States. In the short term, theyΆve provided support to cotton prices because theyΆve been such a heavy importer. But this could have a negative impact on long-term demand. The question weΆre asking for 2013 is how much longer will China continue to build reserves?"
John Robinson, professor and Extension economist at Texas A&M University, says the expected price range for 2013 should fall somewhere in between 65¢ and 85¢. This is essentially the same range as 2012. Compared with prices over the past few years, this range is too low relative to corn and soybeans.
"If youΆre in the Mid-South and can grow corn and soybeans, itΆs probably less risky and more profitable to do so," he says. "In Texas, we can live with 75¢ cotton because our production cost structure is a little lower."
The aforementioned reserve-building happening in China and even India suggests that "the upside is capped," Robinson says.
"So much surplus cotton is being held around the world," he says. "So if there are supply problems, they can release those reserve stocks."
Others are looking back in time to help forecast what the future will bring.
"We look at the last 10 years for periods that had a similar economic and commodity price situation," says Duane Canfield, portfolio marketing leader and general manager for PhytoGen Cotton.
Canfield says there are some similarities with 1998 and he has been trying to tease out additional insights based on this observation.
Adams admits forecasting cotton acres and prices can be difficult.
"ItΆs a challenging market," he says. "Cotton is both an ag commodity and an industrial input. That makes it very difficult to diagnose prices sometimes."
Upland Cotton Acres, 2004-2013 (in millions)
2004: 13.409
2005: 13.975
2006: 14.948
2007: 10.535
2008: 9.297
2009: 9.008
2010: 10.770
2011: 14.428
2012: 12.121
2013: >10.000?