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Cleveland: Stagnant Prices and Demand Are Frustrating

Along with the world’s primary economic indicators, the cotton market took it on the chin all week. No question, my favorite commodity and I will do little more than stagger through the weekend.

Quality cotton continues to earn a rewarding premium. Yet due to this week’s loss in the futures market, net offers to the grower are less than a month ago. We continue to feel that those net-net premiums will return to even higher levels, but U.S. and world economic activity are destroying the recent build-up in consumer confidence.

The positive tone at the Beltwide Cotton Conferences in New Orleans was washed away by the very poor showing of the U.S. stock market and the Thursday announcement by the Secretary of Agriculture that he personally was having problems with the potential cottonseed program – even after virtually every commodity group indicated that cotton was the only commodity without a program, and that it was becoming clear that other commodities were suffering from the fact that a program did not exist for cotton.

The decades of history – written by both Democratic and Republican administrations – that it is less expensive to the government (the U.S. taxpayer) to buy a demand for U.S. agriculture than to pick up the tab for rebuilding rural and inner city America, seems totally lost in the Washington dysfunction.

Well, that is general economics, so let’s get back to cotton. Despite sharply declining world stocks – almost month by month as measured by USDA, and ditto world production – cotton prices are performing as if they want to move lower.

There are two variables in the development or discovery of a cotton price – supply and demand. And I am talking cotton here, not economics. Supply declines, demand is stuck in the mud, and price declines. Consumers, with their pocket books, are exhibiting an increasing dislike for cotton, and we are not reacting, other than throwing out excuses for not acting.

Market price does not care about excuses, or even excellent reasons/logic for not acting to build cotton demand. The market price is only interested in action and results. Will the action help you get a better price for your investment, your blood, sweat and gray hair? The answer is a simple yes or no – nothing more, nothing less.

A question was presented to me as part of a luncheon panel at the Beltwide. The question was something like this: “You give us these comments about cotton production that are very bullish for prices, so how high will prices go?”

My answer was that prices are going nowhere. There is no demand for cotton.

Cotton demand declines every day. The world population increases some 75 million every year, and cotton demand – documented – declines every month. One does not know me if they feel it does not hurt me deeply to say that consumers are voting with dollars a dislike for cotton. If one does not like my choice of words, then sugarcoat it as desired. Consumers are buying cotton goods at an ever decreasing rate. To deny such is simply to be the proverbial ostrich.

Staying with proverbs, growers reported at the Beltwide Conferences that plantings in 2016 would climb to 9.1-9.2 million acres, up from the 2015 planting of 8.6 million. Noting that, my personal estimate was, and remains, 9.3 million. Growers want to expand cotton plantings. More than a few are looking to come back after a few years off. Washington will have a lot to say about that, especially in the big state of Texas. A cottonseed program would push plantings as high as 9.7 million acres, reducing grain acreage a like amount.

The upcoming January supply demand report should reflect major changes in world production and world carryover. Production declines in Pakistan and India are in order, and world carryover will likely be down one million bales, on the way to being down 2.0 million by July, mostly based on the smaller Subcontinent crop.

World production will continue to drop in 2016-17, as will world carryover. Demand will remain stagnant.

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