Buckle Your Seatbelts
March 8, 2010 Cotton prices continue to climb despite acreage forecasts that do, too. You would expect the opposite, right? More acreage, more cotton, lower prices? But cotton stocks are dangerously low and the world will consume more cotton than it produces for the second year in a row. More demand chasing less cotton …
We started this year with projections of less than 10 million acres. On February 18, USDA Chief Economist Joseph Glauber pegged acreage at 10.5 million. Allenberg Cotton Company’s Joe Nicosia agreed with that number, with certain conditions, in his Economic Update at the Mid-South Farm & Gin Show on February 26.
In fact, Nicosia said that if the Nation Cotton Council’s 27th Annual Early Season Planting Intentions Survey of 10.1 million acres is correct, we could be looking at dollar cotton again.
“The world needs 1.5 million acres of cotton and futures should move up to the 80- to 84-cent range. If the U.S. grower does not respond, the foreign grower will,” he said. But he said they had to do it by May, or all bets were off.
I believe American growers will respond if the price of cotton gets that high prior to May, and/or if the price of soybeans and corn drop. So far, neither has happened. Right now, NYBOT October cotton is at 76.55 cents per pound, November soybeans on the Chicago Board of Trade are $9.30 per bushel and December corn is $4.02. Price advantage to soybeans. You decide on corn.
So what’s going on? Several things, according to USDA and Nicosia:
Brazil and Argentina are harvesting soybeans and corn and record crops are projected. But an El Nino is causing heavy rains in Argentina and harvest won’t end until the end of this month. What if it keeps raining, Argentina doesn’t get that record crop out, and supplies tighten? The easy answer is that U.S. exports of soybeans and corn increase and both crops keep their competitive advantage over cotton.
What if the economic recovery hits a bump in the road and cotton consumption falls off?
Here’s where it gets really interesting:
Since January 1, soybeans have lost 90 cents per bushel and corn has lost 50 cents. I suppose the market is betting that Brazil and Argentina will get that record crop out and will dump it on top of a big U.S. crop from 2009. USDA says U. S. soybean acreage will drop this year, replaced somewhat by cotton in the Mid-South and Southeast.
March cotton (the current spot month) was at about 76 cents on January 1, 66 cents the first of February and is over 82 cents today. Each consecutive old-crop month is higher. I suppose that means the market believes consumption will continue to improve and supplies will tighten before the new crop comes off. Even at 10.5 million acres, we may not refill the pipeline.
As Nicosia said, the world needs 1.5 million more acres of cotton. Who will plant it? Us or them? Buckle your seat belts. It’s going to be a wild ride between now and May.
GET THE NEWSLETTER TODAY!
