Even though cotton prices remain stuck in a sub-profitable range for most Cotton Belt producers, acreage could shift out of grain sorghum and dryland wheat and back into cotton this spring.
“I expect a bit of a rebound in cotton acreage,” says John Robinson, cotton economist with Texas A&M University. “Acreage was really low in 2015 due to high sorghum prices, and in Texas, it was so wet that some acres did not get planted. They took preventive planting due to moisture, which never happens in Texas.”
Today, sorghum prices are also at sub-profitable levels, as are corn and wheat prices in the Cotton Belt. The likelihood that Texas will have another wet year is so low that Robinson expects the 500,000 acres of cotton that did not get planted in Texas last year to go in this spring.
“We will get all that back,” the cotton economist says. “People will default to cotton on dryland acres.”
In total, Robinson expects 9.5 million to 10 million acres will be planted to cotton nationwide, which is higher than some of the other early estimates and compares to 8.6 million acres in 2015.
The National Cotton Council will release its official survey-based estimate at its annual meeting February 6-7 in Dallas. At the recent Beltwide Cotton Conferences in January in New Orleans, however, cotton growers indicated that 2016 plantings would climb to between 9.1 million and 9.2 million acres.
Other estimates have been in the same range. O.A. Cleveland, an agricultural economist and professor emeritus at Mississippi State University, expects 9.3 million acres to be planted to cotton this year.
Range-Bound Prices
Neither Cleveland nor Robinson expect cotton prices to rally anytime soon, barring a major weather event that dramatically cuts supply in one of the worldΆs top cotton-producing countries.
“Cotton futures have been range-bound, between 60 cents and 66 cents, since October 2014, due in part to the cheap price of polyester,” says Robinson. “And ample world supplies are keeping the price capped.”
ChinaΆs influence on cotton prices cannot be understated. What happens in China— the worldΆs top user of cotton, its second-largest producer, and one of its largest importers--is a major predictor of cotton prices.
“China still has a government reserve, which it has acquired over the past three years, of more than 50 million bales, which is half of the worldΆs ending stocks,” says Robinson.
While that cotton is not available to the world market, it is a factor that could dramatically weaken prices if China were to decide to sell its reserves. Moreover, the slowdown in ChinaΆs economic growth has also created concern that demand for cotton, which has been weakening anyway, will fall even further despite declining production.
Big Supplies Expected to Decline
World production of cotton is expected to drop to 101.6 million bales, which is sharply lower than both the previous year and the 2013-14 crop year. PakistanΆs crop alone was reduced by 800,000 bales to 7.2 million, the lowest level since 1998 due to extensive whitefly damage. Still, world ending stocks are larger than global production and demand remains weak.
USDA reduced its forecast for world cotton consumption by nearly 500,000 bales, reflecting demand declines in India, Pakistan, and the United States. Estimated world ending stocks of 102.9 million bales are 8% below the previous year, but only 0.2% below 2013-14 ending stocks.
Despite the glut of world supply and weakening demand, it still makes sense to plant cotton this spring. Not only is it often the best choice for dryland acres in Texas, but cotton pencils out for farmers in the Cotton Belt who produce a good crop.
“Producers in the mid-South who got good yields and good grades last year got enough of a premium to make it profitable, so they will plant more cotton this year,” says Robinson. “You can make it work.”
