Shurley on Cotton: Not Surprisingly, Market Improvement Slows Down
By Dr. Don Shurley
Since the low in late January, old crop (May15 futures) prices have improved six cents. Prices thus far today (February 27) stand at 64.84 – up just slightly (.18 cents) for the week.
Is the rally beginning to run its course? Perhaps. But we couldn’t – and didn’t – expect this to last forever anyway. We’ve discussed it on several previous occasions – use market rallies and timing with the available LDP/MLG to attempt to generate as much “total money” as possible.
No doubt the six cent rally was a correction that the market saw was needed, and it has also been supported by strong export sales at these price levels and the mill demand for quality fiber. One take-home lesson is that there must be both buyers and sellers to sustain prices at any level.
Can prices continue to trek further upward? Yes, if the demand doesn’t begin to dry up. There are many market uncertainties, however, and the slowdown might just be a signal that the market feels a need to take a breather. The six cent rally should now solidify a floor at 58 to 60 cents. But there is likely resistance or a ceiling around 68 cents.
New crop (Dec15 futures) prices have also edged upward – currently at or near 66 cents on February 27. Our “magic number” is 70 cents. We’re not there yet, and we may not get there anytime soon, if ever. But look at where we are now compared to a month ago. Who among us thought we would be at 66 cents at this stage?
If you’re growing cotton for 2015, you’ve got to be patient, understand your worst-case scenario and carefully evaluate opportunities as they present themselves.
The National Cotton Council survey estimates U.S. acreage down 14.6 percent for 2015. At the recent USDA Outlook Forum, the estimate was that acreage will be down 12 percent. Acreage harvested and yield will be the key market factors, not acres planted.
As we look ahead to planting time and this summer, what will acreage and production be in foreign countries? Growers don’t get the same signals everywhere, and they respond differently. Will the Use of cotton continue to improve (trend up since 2010)? More importantly, if our hope is for higher prices, will foreign mills continue to buy at higher prices? How much will China import? Regardless of what they say, what will the facts ultimately be? Will the demand for high-quality fiber continue to be good, creating a good opportunity for U.S. exports?
To be at 66 cents right now gives us some hope, but there’s too much unknown for the market to be justified in moving much higher at this juncture. But as we’ve witnessed over the past month, things can change quickly.
Shurley is Professor Emeritus of Cotton Economics, Department of Agricultural and Applied Economics, University of Georgia