By Dr. O. A. Cleveland
Professor Emeritus, Mississippi State University
For Bayer CropScience
Some six months ago my friends at Cn Cotton (China) suggested to me that they felt cotton prices could slide to as low as 85 cents before everything was said and done … if I had only listened! The exceptionally poor state of affairs relative to fiber demand has pushed the market lower and lower. Recall, I felt the 92-94 cent support level would hold, but did caution that if it did not then a drop to Cn CottonΆs 85-cent mark would be the next support level.
So, where do we go from here? “Disneyworld” looms large as Orlando is the site of January 3-6 Beltwide Cotton Conferences. But, as for cotton, letΆs put the bottom at the 85-cent mark.
Yet, it is noted that the weak global economy, coupled with the on/off and ongoing concern about the European debt situation and the nearly one trillion dollars of that debt held by private U.S. financial institutions, has and will continue to whipsaw the cotton market on a weekly basis. Indeed, the entire commodity complex and the international stock markets are at the mercy of the thoughts about the European situation. Nevertheless, the cotton market will withstand the debt crisis just as well and the grains, oilseeds and industrial commodity markets do.
Peak harvest has come and gone in the western countries and is in full stride now in the eastern countries. Thus, the primary market fundamentals are reasonably well defined for the coming year. The world crop will be about 123 million bales, world consumption will shrink to some 112 million bales, and world carryover stocks are projected to balloon to nearly 58 million. Therefore, the market is now giving the appearance of having absorbed all the bearish news it must face during the remainder of the 2011/12 marketing year.
The weakness in demand is likely overstated now that cotton prices have slumped to lowest level in some twelve months. Likewise, mills who have been content to let supplies drop to lower than traditional levels are indicating their buying will begin anew. Cotton is favorably priced versus polyester and that is another first step in getting the market to halt its skid and attempt an upward move.
The lower prices have dampened planting intentions for 2012. Thus, the market must stage its typical February rally to draw acres back to cotton or risk roller coaster price activity during the 2012/13 season. Additionally, foreign plantings are expected to be off as much as 7% in the coming year. Yet, we must remember that that it will take 12 to 18 months to work world stocks low enough for the market to make a sustained rally. The expected “farm gate” price for cotton during 2012 will likely be in the mid to upper eighties.
