April 13, 2010
The cotton market price continues to gain old crop support because of declining stocks and improved demand. However, new crop cotton (2010/11) faces a substantial increase in U.S. and foreign production, compared to an expected small gain in consumption. Thus, the December ’10 futures price range for producers to fix a price floor appears, at planting time, to be in the 75 to 78 cent range for the 2010/11 season.
The April USDA cotton forecasts reduced 2009/10 production by 250,000 bales to 12.15 million from the previous month, based on the final cotton ginnings report. As a result, carryover stocks were decreased by 200,000 bales to 3.0 million, the smallest since 2.6 million in 1995/96. But, the stocks-to-use (s/u) ratio at 19.4 percent is the smallest only since 2003/04. The USDA forecasts a range of 61.5 to 65.5 cents for the 2009/10 average price received by producers
World forecasts for 2009/10 suggest only slightly lower carryover stocks than a month ago. Yet, stocks of 50.9 million bales stand at a market supportive level of 43.9 percent of world consumption. That is the smallest world s/u since 1994/95.
The December 2010 futures has traded sideways since mid-March in the vicinity of 75 cents. The season’s high was 78 cents around Thanksgiving last year. Also, the 10-year average high for December contracts is 75 cents per pound, and the low is 43.4 cents. December ’10 futures trading above 75 cents offers a price level that is well above most seasons.
The March USDA Prospective Plantings Report at 10.5 million acres of all cotton was on the high side of expectations. The largest intended planted acreage increase is 600,000 acres in Texas. That increase totals to 5.6 million acres, the largest since 6.4 million in 2006.
Moisture conditions in Texas are excellent across dryland and irrigated acreage. Abandoned acreage could be low and, if yield per acre is around the record 843 pounds per acre in 2007, the Texas crop could exceed 8 million bales.
For U.S. upland cotton, the Southeast plans to plant 2,390 million acres, 499,000 more than last year; the Delta 1,730 million, 103,000 more; the Southwest 5,875 million, 632,000 more; and the West 320,000 million, 76,000 more. Total 2010/11 upland cotton acreage is 10.3 million, or 1,307 million more acres than in 2009/10.
With favorable weather, the U.S. 2010/11 upland crop could be 18 million bales. If abandonment of planted acreage is low and yield averages only 822 pounds, the crop may total 17 million bales. Thus, 2010 December futures, having already reached a 75 cent level, could encourage sufficient U.S. acreage to easily meet a 2010/11 12 million bale export market and a 4 million bale domestic use. A 16 million bale offtake would still leave several million bales more to add to this year’s 3.0 bale carryover.
Foreign carryover is also expected to increase because of an expected 10 to 15 percent expansion in acreage overseas. An “A” Index price now over 80 cents will encourage foreign growers to plant much more cotton. Consequently, provided good growing conditions, the December ’10 futures price may be at least 10 to 15 cents per pound lower in the second half of this calendar year than the current midseventy cent range.