“I wish I could tell you we will see 80- or 90-cent cotton ahead, but
a combination of factors will likely
keep the 2001 market rather lackluster. But that doesn’t mean there
won’t be any profit in this year’s
market,” said Carl Anderson, Texas Agricultural Extension Service economist
based in College Station.
“Based on the latest USDA crop report, there will probably be enough
cotton in 2001 to hold December
futures between 62 and 72 cents per pound until the end of the year.
“Even so, I am bearish on short-run prices and rather bullish on long-term
prices. You could see prices
recover to near 69 cents per pound by May – when you normally begin
planting.”
Anderson made these projections while addressing more than 120 South
Plains cotton producers at the
recent Llano Estacado West Cotton Conference here. The conference
is one of several January and
February regional production meetings held by South Plains county
Extension agents each year.
Imports and exports, consumption, uncertainty about China’s cotton marketing
position, and higher U.S.
planting intentions will play a role in setting 2001 cotton prices,
Anderson said.
“China, for example, just recently and rather unexpectedly, ‘found’
another 2 million bales of cotton. That
effectively boosts their 2001 expected production to 20 million bales,”
Anderson noted. “At the same time,
USDA expects 2001 world cotton consumption to rise by 340,000 bales,
while world stocks decline by
about 3.77 million bales. If this higher consumption, lower stocks
scenario pans out, we could see prices
move upward.”
If the U.S. economy slows and European and Asian economies remain stable,
world cotton demand should
remain stable this year, the economist said. But even though USDA’s
latest numbers imply that world
production is not keeping up with global cotton consumption, global
carryover stocks need to decline even
further to sustain a rally in cotton prices, Anderson added.
“USDA also expects U.S. producers will increase their cotton acreage
this year, due to low prices for other
crops, favorable crop insurance, and higher export sales potential,”
he said. “If we plant a 15.8 million acre
crop, we could produce about 19 million bales of cotton in 2001 – about
1 million more bales than the
market really needs.
“Even so, I think we will see an A index between 65 and 75 cents per
pound for the next 12 months. And
that gives you (producers) some pricing and profit opportunities.”
The A index is the lowest average world price in five of the world’s 12 major cotton producing nations.
Anderson said producers should strongly consider pricing the bulk of
their crop between April and June of
this year. He also recommended they watch the market closely, and employ
pool pricing to increase their
market leverage.
“Try to have your crop priced by July, at the latest. Buying puts as
price insurance, and selling out-of-the-
money calls is a good way to lock in a floor price while leaving the
ceiling open if a shifting market pushes
prices even higher,” he said. “Joining a marketing club or gin pool
can add price leverage to your marketing
strategy. There is strength in numbers.
“Forward contracts are another option. But remember that discounts can
erode the security of locking in a
price with forward contracts.”
He also said producers must reduce cotton production costs, diversify
through crop rotation, use
prescription ginning to meet end-user (cotton buyer) demands, and develop
flexible, integrated marketing
plans in order to ride out price slides in the market.
“For a lot of you, that means changing the way you do business,” Anderson
said. “At the same time, you
should be thinking about policy – because Washington may soon initiate
some changes in our farm bill.
“You can influence that process as a group. You can help bolster our
economy and long-term ag
profitability by supporting changes that enhance international
market competition, strengthen our income
safety net, control federal budget costs, reduce world commodity stocks,
and help protect our natural
resources.”