Cotton market makes “partial” recovery


Most analysts and observers expect a likely range of 75 to 85 cents on new crop cotton Dec14 futures. Cotton prices were near the 76-cent mark late last fall, and 2 weeks ago, tested that area again.

Prices were back over 78 cents on Tuesday and Wednesday before Valentine’s Day but then ran into a little headwind. Dec14 closed the week at 77.68 cents per pound.

I have little doubt that most growers are waiting for prices to hit 80 cents or a little better before beginning to fix prices for new crop. Basis on contracts seems to be very good—around -100 points in some cases (in some GA locations). With a good basis, some growers may have already taken advantage and fixed price at 78 to 79 cents on a small portion of expected production.

Old crop cotton

Prices for any remaining old crop to sell are currently -250 basis May for 41-4/34 but +50 for 31-3/35. May is approaching 90 cents. If you still have the majority or a large part of the 2013 crop remaining to sell, now would seem to be a good time let go of at least some of it. If you only have a rather small part of the crop left and you want to let it ride, that might be worth the risk especially if the quality is good….. but don’t let the market turn South on you. Be watchful. July is at a discount to May so there could be potential weakness ahead.

February 8, the National Cotton Council released the results of their 2014 acreage survey. The projection is 11.26 million acres—up 8.2 percent from last year.

Survey responses were from mid-December to mid-January—a time at which new crop prices were trending up and expectations improving. The 11.26 number was with the range of most expectations—probably on the upper end of the range.

Big increases are expected in the Mid-South where cotton acreage has decline dramatically in recent years due to acreage switched to corn and soybeans. Texas is expected up, California down due to drought.

In the Southeast, Georgia is expected about the same as last year. Alabama and Virginia are expected to be up; everybody else down.

Southeast cotton acreage for 2014 is a toss-up. Corn acreage could be down but soybeans up or at least hold their own. This could explain the expected decline in cotton acreage. The big unknown is clearly peanuts.

Peanuts make competitive option in 2014

With cotton, corn and soybean prices currently down compared to last year, peanuts have an opportunity to be more competitive depending on contract availability and prices. Further, when the council survey was taken, the new farm bill had not been passed and the provisions were unknown. While FSA has yet to write the rules and regulations, the new farm bill may offer opportunity for peanuts.

The new farm bill appears to provide opportunity for covered commodities (corn, soybeans, peanuts, etc.) to be planted on generic base acres and those acres be eligible for the PLC or ARC program. The PLC Reference Price for peanuts is $535 per ton.

The February supply/demand numbers released Feb. 17 were neutral to slightly bullish. World demand (use) was left unchanged (down very slightly), production was decreased just over a million bales, and thus projected ending stocks are down approximately 1.2 million bales.

U.S. exports for the 2013 crop year were left the same as in January, at 10.5 million bales. It was expected that the export projection might be increased. The China crop was cut 1 million bales and thus China’s stocks cut by 1 million bales. Chinese imports remain at 11 million bales.

U.S. acreage and production are expected to increase in 2014-15. Chinese production is expected to be down. On balance, world production is expected to increase. Production will still outpace demand and ending stocks increase further. China is expected to reduce imports from 2013 crop levels and this would likely reduce U.S. exports. U.S. ending stocks would increase.

This points to an overall weaker price level for the 2014 crop compared to 2013. The expected range in price is 75 to 85 cents. The upper half of this range, however, will likely depend on supply shocks, a change in China’s expected imports and use of stocks, and better than expected demand (use).