By Dr. O. A. Cleveland
Professor Emeritus, Mississippi State University
For Bayer CropScience

The Beltwide Cotton Conferences concluded last week with U.S. cotton growers leaving Atlanta very upbeat and most planning to plant more cotton acreage in 2011.

Estimates ranged from 12.6 to 13.2 million acres, or about 1.5 to 2.0 million acres more than planted in 2010. My thought is that 12.8 million acres will be planted. However, one could argue that plantings will reach 13 million acres. World supplies are so restricted that both U.S. and world acreage will increase; yet new-crop (2011) cotton prices will continue to hold the one-dollar level, or thereabouts. Long range weather forecasters are currently suggesting a scenario that would stress production worldwide; therefore causing prices to trade well above one dollar.

With nearly all old crop (2010) production either sold or committed, U.S. growers will concentrate on the new-crop December contract, currently trading the 95-102 cent range, while the old crop contracts of March, May and July will ration those few remaining bales of the 2010 crop. The March, May and July contracts will continue to lead the market. The very wide and volatile trading range of 130-160 cents will continue to be worked. Cotton really is that scare.

Additionally, the cotton/corn and cotton/soybean price rations must now remain stable if cotton acreage is to expand. While the job of the March, May and July contracts is to ration what little cotton remains, the job of the December contract is to convince Mid-South and Southeastern growers to plant more cotton acreage in 2011. The only way for the market to do this is to keep December either near or above the one-dollar price level. Too, given the current level of world demand, cotton prices will remain strong into 2012.

Also of note have been the last two weekly export sales reports. Both of those reports have underlined the strong demand that exists for cotton at (1) prices above one dollar and (2) the strong demand for cotton into the 2011/12 marketing year. For the past two weeks, U.S. export sales of cotton for the 2011/12 marketing year have exceeded sales for the current marketing year, 2010/11. This is the first time since weekly data has been posted that “next marketing year” sales have exceeded current marketing year sales this early in the season. Granted, this last week’s report showed negative sales for the current season as cancellations were evident. However, the principal cancellations were actually “switches” as the cancellations were offset by sales for the 2011/12 marketing year.

Weather remains a major concern as the widespread flooding in Australia has likely reduced that Southern Hemisphere crop by 300,000 bales.

Too, the U.S. Cotton Belt is abnormally dry. Drought conditions exist from New Mexico into Texas and across to the Midsouth and most of the Southeast. Portions of the Cotton Belt are showing moderate to extreme drought. Additionally, unlike 2010, the Rolling Plains and High Plains of Texas, and the states of New Mexico and Oklahoma have little subsoil moisture. Historically, those regions experience abnormally low yields without good subsoil moisture. In fact, while Texas may see an additional 650,000 acres planted to cotton this year, the actual number of bales produced is forecast to be no more than that produced in 2010.

The market remains too volatile to buy options; however, growers should consider forwarding pricing as much as 25 percent of the 2011 production.