In the last month, the cotton market for 2009/10 crop has reflected tight supplies in nearby May and July futures. Meanwhile, December ’10 futures has traded roughly at 10 cents per pound less in the 75 cent to 78 cent per pound range because a much larger 2010/11 crop is projected worldwide. However, the latest USDA report indicates cotton stocks will remain at a market supportive level for another season. World cotton carryover stocks dropped in excess of 10 million bales (16.5%) this season and are estimated to decline by another 3 million (5.0%) in the 2010 season.
The result is a tight 2010/11 world carryover-touse( s/u) ratio of 42.1 percent that is the lowest since 37.8 percent in 1994/95. During the 1994/95 season, the “A” Index averaged 94.3 cents per pound, and the North Delta area spot price 41-34 quality cotton averaged 87.25 cents. Thus, the world cotton market is faced with limited carryover stocks and high prices for another season.
The U.S. cotton price has rallied sharply since 48 cents in 2008/09 to some 67 cents for the 2009/10 season’s price quote. Likewise, the world price (“A” Index) has jumped from 61 cents in 2008/09 to recent levels around 90 cents. Yet, December ’10 futures seems comfortable in the high 70 cent range until 2010/11 crop begins to firm up in August and September.
Higher prices usually encourage more production and less use. Even so, USDA projects the 2010/11 season’s price to average 60 to 74 cents per pound.
Foreign cotton production has tremendous potential to rebound from last season as does the U.S. crop. Therefore, world production is expected to easily increase by 10 percent and will likely be near the level of consumption.Still, the outlook is for a small decline in carryover stocks. If so, the U.S. 2010/11 farm price may average in the mid to high 60 cent range.
Cotton yields are higher in Brazil (1,355 lbs./ac.) and China (1,188 lbs./ac.) than in the U.S. (815 lbs./ac.). Although yields are lower, around a bale per acre, in India, their acreage is large and may produce a 25 million bale crop. These four countries are expected to produce at least 82 million bales in 2010/11, compared to 74 million in 2009/10. USDA projects the world production to be 114 million bales in 2010/11 versus 103 million the season before.
Producers are encouraged to have a market plan to price most of their cotton by mid year. Much more acreage, good yields, and lower prices are likely for the fall harvest period than the first half of 2010.
The Ag Market Network Teleconference will be Thursday, May 11, 2010 at 7:30 a.m. Central Time. Featured speaker this month will be O.A. Cleveland, Professor Emeritus, Mississippi State University. Speakers – cotton panel are Mike Stevens, Carl Anderson, and John Robinson. Pat McClatchy is the Ag Market Network Moderator. The conference will be live on radio station KFLP 900 AM, Floydada, Texas; and KZIP 1310 AM, Amarillo, Texas; live over the Internet at www.AgMarketNetwork.net; or you can listen to a recording around noon at www.AgMarketNetwork.net. Weekly updates are made on Friday afternoon by Mike Stevens.