John Robinson, Extension economist, cotton marketing, Texas
Price discovery for crop insurance refers to the time periods wherein the official planting-time price for most crop insurance products is established. This price, also known as the “projected price,” is used for establishing insurance guarantees for products such as yield protection, revenue protection, the Stacked Income Protection Plan, the Supplemental Coverage Option and the Enhanced Coverage Option.
The projected price for cotton is calculated specifically as the average of settlements of the Dec’26 Intercontinental Exchange (ICE) cotton futures contract during specified monthly time periods. For example, the price discovery time period for South Texas was over mid-December to mid-January. The average Dec’26 futures settlement price over that period was 68 cents per pound.
A large swath of the Cotton Belt (Central Texas to Virginia) has a price discovery period of mid-January to mid-February. The latest price discovery region is for northwestern Texas over the month of February.
As of this writing, there are less than four weeks for a market rally to pull the average price settlement above 70 cents for northwestern Texas. Obviously, the higher the futures market settlements during price discovery, the higher the insurance coverage. Most of the Cotton Belt has missed a timely rally for insurance purposes.
Thinking hopefully and hypothetically, what might trigger such a rally? One possibility would be a surprisingly low planted acreage forecast in the National Cotton Council’s planting intentions results (in the second week of February). The NCC’s survey results are part of a major industry economic outlook and will be closely watched by cotton market analysts.
Also watching will be speculative traders, some of whom have been holding on to short positions in a bet for a continued downtrend in ICE cotton futures prices. A surprisingly low planted acreage forecast might induce a short covering rally if those speculators buy back their bearish bets en masse. I wouldn’t expect such a rally to have much endurance, if it happens at all, but it would do its work if it raised the average settlement price of Dec’26 before the end of February.
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