By Dr. O. A. Cleveland
Professor Emeritus, Mississippi State University
For Bayer CropScience
The USDA March 31 planting intentions report was the driving force behind this week’s higher prices. The good news for growers — bad news for mills — was that the price advance was led by the new-crop December contract. The report was another bright headlight shining directly on the world’s concern of low global stocks. Further, old-crop prices will continue to be supported by on-call sales. Call sales for both May and July are being reduced, but at a much slower pace than is necessary to prevent increasing price activity going into FND (first notice day) for each of the respective contracts. The new crop is poised to take the reins of price leadership and the market will now become closely attuned to Northern Hemisphere plantings.
The plantings intentions report drew a near perfect picture to our long standing view that cotton prices are not going down by any appreciable amount. Neither is the price of other field crops. There simply is no margin for error in the production of all field crops. Cotton must compete with soybeans, soybeans with corn, corn with cotton, and soybeans with wheat. All commodities are in a “Catch 22.” One will not go down until they all go down. With the absence of any appreciable world carryover of any of these commodities, the market is asking for more land to be brought into production. Until more cultivatable land area is brought into production the price ratios of cotton, corn, soybeans and wheat will remain at these historically high levels.
(Editor’s note: On Wednesday, March 8, the December 11 contract on the New York Board of Trade hit a life-of-contract high of 144.05 cents per pound,)
The USDA intentions report was a little more than a repeat of the January based intentions survey by the National Cotton Like the Council’s report, USDA projected grower intentions at 12.57 million acres, not far from the National Councils’ estimate of 12.51 million. (Editor’s note: Cotton Grower’s estimate was 12.44 million acres.)
The USDA estimate represents a 14.5 percent increase over 2010 plantings. States with the largest physical increase in were Texas, 548,000 acres; North Carolina, 200,000 acres; Georgia, 120,000, and Mississippi at 110,000 acres. Both the Southeast and Mid-South were estimated to be up some 20 percent over 2010 plantings.
Friday, April 8, is the release date for the April supply/demand report. That report is also expected to be bullish for cotton. Yet, the bullish news may be incorporated into the market prior to the report’s release which, in fact, would likely cause the market to decline on the report’s release. Nevertheless, the market should find the report very supportive in the long term.
U.S. merchants continue the unusual practice of “buying back” export sales, fearing that cotton may not be available in the July/October time period. The effect is to allow the merchants to reduce sales for 2010/11 and switch those sales to 2011/12 when cotton is expected to be more readably available. Nevertheless, world supplies will continue to remain very tight into 2012 and 2013, at a minimum. Further, if U.S. grower plantings intentions of 12.57 million acres are met, then 2012 plantings should be expected to be even larger as world prices will beg for more acreage.
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Production difficulties could still take December into the 140.00 to 150.00 area. However, if actual plantings are appreciably more than intentions, then December could slip closer to one dollar. Bottom line: Consider pricing up to one-third of your 2011 crop at current levels.
