US farmers will plant one of the smallest cotton crops in two decades in 2013 as the fibre loses a battle for acreage to the more buoyant grains market, according to a Thomson Reuters poll. Ahead of the Beltwide Cotton conference here this week, an informal survey of market participants showed that American farmers are expected to sow 10.36 million acres of cotton in the spring, down 16 percent from 12.36 million in 2012.
Another double-digit percentage drop this year would take acreage to its third lowest since 1987, behind 2008 and 2009, according to US Department of Agriculture archives. It would also be 9-percent below the five-year average and more than a fifth under the average of the past 10 years. Fluctuations are not uncommon from one year to the next as farmers gravitate to the most profitable crops.
But the alarming speed and rate at which farmers may shift out of cotton are likely to underscore some concerns that the wild price swings of the past four years may have done long-term damage to growers' appetite for fibres. While prices have stabilised since 2011, farmers may still be "disenchanted" after struggling to sell their crops amid fluctuating prices and record volatility, said Sharon Johnson, cotton specialist at Knight Capital.
For a second year, fibre will struggle to compete for acreage with grain, which had prices shoot to record levels last summer as the worst drought in more than half a century gripped the cornbelt. "Relative prices of key alternate crops - particularly corn and soyabeans - along with another impressive tumble in the price of cotton are likely to result in producers across the cotton belt seeing relatively less net profit per acre for cotton this year, causing plantings to wither again," said FCStone analysts.
Wheat and soyabeans were the best-performing commodities in 2012, while cotton futures were the third weakest, losing 17 percent of their value as the market struggled with oversupply and flat demand. That followed an even worse performance in 2011 when prices plunged by more than a third. With more than two months before the USDA publishes its potential planting estimate in March, two factors could swing the fate of fibres: weather in top-producer Texas and falling grain prices.
The ratio between soyabeans and cotton prices, often used by farmers and merchants as a measure of profitability, is still high enough to lure growers away from cotton. But the gap has narrowed as soyabean and corn prices have erased most of last year's bumper gains as concerns about crop damage from the drought waned and exports have weakened. At the same time, cotton staged a late rally in December amid signs of continued interest from China, the world's biggest textile industry.
Weather will be a factor in determining whether growers make the switch. If the drought-stricken Southwest gets much-needed rain, farmers will be able to grow more grain rather than the more resilient cotton. Knight's Johnson has pegged cotton planting at 9.98 million acres, but said this figure could fall close to 9 million if rainfall in the Southwest improves. That would set a 20-year low based on USDA records that go back to 1909.
Massive swings in crop sizes have had a major effect on the market. In 2011, US farmers planted 14.73 million acres to cotton, the highest in five years in direct reaction to a near tripling in prices over the course of the previous year. China had launched its extensive stockpiling policy and the crop in Texas, the country's biggest growing state, were all but wiped out by drought.
But after peaking at $2.2 per lb in March of that year, prices quickly sank to below $1 as the new crops hit the market. Demand had also plunged as textile mills used more man-made fibres to avoid volatile raw cotton prices. Only US-grown cotton, which accounts for one-fifth of this world's estimated 116 million 480-lb bale output in 2012/13, is accepted for delivery on ICE.
