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COVID-19 Pandemic, Global Economic Downturn Are Major Roadblocks to Cotton Profitability
AUSTIN, Texas (DTN) -- The worldwide COVID-19 health and economic crisis will make it difficult, but not impossible, for cotton farmers to make a profit this year.
John R.C. Robinson, a Texas A&M professor and Extension economist, was optimistic that cotton prices could hit 75 cents per pound this year. Most farmers can make money selling cotton at that price, he said.
Recent trade agreements with two of the top importers of U.S. cotton and an anticipated drop in plantings and supply gave Robinson confidence to make that projection at the Beltwide Cotton Conference in Austin, Texas, in January.
Then, the coronavirus pandemic hit and cotton values plummeted. On Thursday, March 26, May cotton closed at 52.78 per pound, its lowest spot price since 2009 and down from 69.05 cents at the start of the year.
"Most of the trading now is based on fear and uncertainty," Robinson said. "Cotton demand, like stock markets for major retail and industrial companies, tend to follow expectations for GDP (gross domestic product).
"If the pandemic and its panic is resolved quickly, we could return to an outlook based on the fundamental ending stocks outcome," he continued.
Robinson recently downgraded his cotton plantings projection from 13 million (close to USDA's current estimate) to 10.5 million acres this year based on current economic factors. The USDA Prospective Plantings Report will be released Tuesday, March 31.
At 10.5 million acres, Robinson projects production at nearly 14.2 million bales and ending stocks close to 3.2 million bales. If the pandemic subsides in the coming months, he could see cotton prices trading in the upper 60s (cents per pound).
"A lot of farmers are probably not covering costs when futures are below 70 cents," Robinson said. "But profitability depends on region, yield and cost of production."
FARMER'S VIEW
Bryce Wilde, who grows several thousand acres of cotton with family near Lyford, Texas, hopes prices will recover soon. He'll watch markets closely to lock in profits when he can using basis contracts. (Editor’s note: Wilde is not related to the author.)
