By Dr. O.A. Cleveland
Mississippi State University
Special for Bayer CropScience
Cotton prices moved lower all week as the market failed to find any support in the USDA March Cotton Planting Intentions Report. The report indicated U.S. growers would plant 13.2 million acres in 2012. While this was in line with the National Cotton CouncilΆs February report (conditions as of Jan 1-15) and the February USDA subjective estimate of 13.0 million (February conditions), most felt the report would reflect smaller plantings. However, while USDA released the report on March 30, it was based on conditions as of March 1. It was just after that date that the market succumbed to the bears and traced lower most of March. The March bearish news was related to questionable demand as the world grew weary of Chinese and European economic growth rates.
My inclination remains one of expecting December futures to return for a challenge of the dollar mark. Rather, I will continue sawing on the limb that keeps me suspended in thin air and almost alone in suggesting that cotton demand has turned the corner and is now headed back up, albeit slow. I would be remiss not to suggest that most of my colleagues feel the market is on a path that will take it to the mid-to-high 70Άs. Their rationale is that demand continues to slip and that world stocks, at the highest level ever, will prove to be too much for the 85 cent mark to hold to hold.
Yet, to steal a line from Coach Lou, “not so fast my friend.” Virtually every economic indicator for the U.S. economy is pointing upward…job growth without higher wages (meaning zero inflation), the stock marketΆs record levels, retail sales, tax revenues, housing sales, decline in unemployment.
All of these and other speak to an improving economy. Granted, the growth is slow, but as stressed as the respective 50 states are, most are seeing actual state revenues now exceed projections. Too, India, after halting all cotton exports because of its now massive and growing domestic textile industry, announced it will join China in building a national strategic reserve of cotton. The U.S. is now just about the lone exporter of cotton. Too, U.S. growths are low priced, all but insuring that U.S. exports will continue to grow.
This is not to say that the market is out of the woods. However, growers in both the Southeast and Midsouth are switching acreage almost daily from cotton to soybeans. Look for actual U.S. acreage to be some 12.8-12.9 million acres. Much of the acreage switch is coming on irrigated land, (even some in West Texas for feed), thus it is high yielding acreage that is coming out of cotton.
The heavy hand of excess supplies is not as great as appears, especially with West Texas well into its second year of a major drought. Look for the USDA April supply demand report on April 10 to drop ending stocks some 300,000 to 600,000 bales. The AgMarket Network team will present its analysis of the report on April 11, 7:30 AM central time. The group discussion can be heard live on radio station KFLP 900 AM Floydada, Texas and KZIP 1310 AM Amarillo, Texas. You can listen live over the internet at www.AgMarketNetwork.com. A recording will be available at noon at www.AgMarketNetwork.com.
