The U.S. crop estimate for November was
increased 708,000 bales to 18.85 million. Most of
the increase was in Texas where 600,000 bales were
added. The resulting 8.1 million bale crop is
second only to the 8.44 million in 2005.
The U.S. forecasts included increased
production, fewer exports and much higher ending
stocks. The 7.6 million expected carryover is 19
percent above the October estimate.
However, offsetting world supply and demand
forecasts indicated lower production, consumption
and ending stocks than last month. Thus, world
stocks appear in line with current “A” Index prices
around 70 to 72 cents. Consequently, producers
should carefully consider marketing cotton when
prices are several cents above the CCC loan value.
Typically, nearby U.S. futures are some 4 to 7
cents under the world price. And, the producer’s
price runs well below the futures contract price
because of delivery costs. The larger U.S. crop
indicates December ’07 futures will continue
trading mostly in the low sixty cent level.
Looking ahead to the 2008/09 U.S. crop, current
cotton prices versus relatively high corn, sorghum,
wheat, and soybean prices indicate another sizable
cut in cotton acreage. The largest acreage cuts are
expected in the Delta states and the Southeast.
California will likely continue to plant fewer acres.
Unlike the other cotton areas, Texas will likely
plant about 5.0 million acres, which is similar to the
plantings this season. Limited irrigation water for
corn, high energy costs, and the record 2007/08
dryland cotton yield will encourage producers to
continue planting cotton.
A decrease of 850,000 in Beltwide acres would
leave 10 million planted for next season. A yield of
840 pounds per harvested acre would produce a 16
million bale crop. With the estimated 7.6 million
from the 2007/08 harvest, the 2008/09 cotton
supply might be about 24 million bales and offtake
around 20 million. If so, projected 2008/09
carryover could be cut to a tight supply of 3 to 4
million bales.
The risk of a drop in U.S. supply might support
the December ’08 futures price in the high 70 cent
range. The surge in energy prices and a slowing
economy is expected to dampen U.S. consumer
demand for cotton goods.
Another critical issue is with higher yields,
China, India, Brazil and other foreign countries may
produce more cotton than projected. Too, 70 cents
encourages cotton acreage. More foreign
production will reduce U.S. export demand.
December ’08 futures prices in the mid-seventies
are indicating the market is aware of tight 2008/09
supplies. Producers need to watch for the
possibility of short price rallies in early 2008. Be
alert for forward contracts and useable option
strategies to place a floor on favorable prices.
