Projected Plantings Close to Expectations

March 31, 2006

The USDA March 2006 Prospective Plantings Report for all cotton shows intended plantings at 14.6 million acres. That is close to the middle of expectations, and compares to 14.2 million last year and 13.7 million in 2004/05.

Even with China’s crop increasing to 30 million this year, their use may reach 48 million, leaving the need for large cotton shipments from the U.S.

Given U.S. plantings of 14.6 million and total offtake around 22.5 million bales (16.7 exports and 5.8 domestic use), a crop of 22.0 to 23.0 million (14.6 x .92 = 13.4 harvested x 800 lbs. = 22.4 million 480 lb. bales) will about cover use and may lower carryover stocks slightly to near 6.0 million. If so, there would be enough cotton to meet record exports and hold December ’06 futures in a range of 58 to 64 cents. A December ’06 price of 62 cents is still a good place to fix a floor on part of your cotton.

Texas producers intend to plant 6.0 million acres, 100,000 more than last year. The Rio Grande Valley and Corpus Christi areas are in need of rain now. Central Texas has adequate moisture for cotton planting. The 5 million or so acres in the Texas Panhandle, Southern Great Plains and Rolling Plains have mixed moisture conditions. Yet, this area can benefit greatly from rains over the next six to eight weeks. With new varieties, the 2.0 million acres irrigated has potential for a good crop. However, sand storms, hail and cool weather diseases could damage cotton regardless of irrigation. Several hundred thousand acres of drip irrigation can produce 3 to 4 bales per acre. Because of new technology, the Texas cotton crop might reach 6 to 7 million bales, despite stressful weather.

American-Pima cotton producers intend to plant 334,000 acres, up from 270,000 last year. With 290,000 acres, California dominates American-Pima production.

In the short run, for about two or three months, the U.S. market has plenty of cotton for export. As of March 21, there were over 7 million bales remaining in the Commodity Credit Corporation (CCC) loan program. The USDA target of 16.8 million bale exports only needs about 8 million more running bales to satisfy the record shipment level. The need to move cotton to the ports by truck has created a large shortage of trucks available to haul cotton, especially in Texas.

Given the 14.6 million acre planting intentions and projecting a crop between 22 and 23 million, and total use around the same level, carryover falls in the 5.5 to 6.5 million bale range. If so, December ’06 futures will likely trade mostly around 58 to 64 cents.

Producers should carefully consider using December put options to place a floor on price in the vicinity of 62 cents and higher. Option spreads can be used when appropriate. When December futures are depressed, then a bull call spread could be used by buying 60 to 62 cent calls and selling 68 to 70 cent calls.

If market rallies near the long call position, a short futures could be placed near the call for a synthetic put position in case the crop turns out near the 23 million bale level and December drops below 55 cents. The market will be weather sensitive for the next three months.

The Ag Market Network Teleconference will be Wednesday, April 12, 2006 at 7:30 a.m. Central Time. Speakers are O.A. Cleveland, Carl Anderson, and Mike Stevens. The conference will be live own radio station KFLP 900 AM Floydada, Texas; live over the Internet at; or you can listen to a recording around noon at


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