Jordan Lea Projects Optimism, Acreage Spike for 2011 and Beyond
March 4, 2011 This year’s National Cotton Council (NCC) Beltwide Cotton Conferences in early January in Atlanta reaffirmed what we thought we knew — the worst appears to be over.
That’s what a potential 15%-20% increase in acreage and $1-plus cotton will do to attitudes almost every time.
As last year’s Beltwide in New Orleans ended, the word was “million.” As in, “we expect at least a million more acres of cotton this year.” We got that and more as acreage rose from slightly over 9 million acres in 2009 to 10.7 million in 2010. As the Beltwide wound down in Atlanta, we had to ask ourselves: “Is 2 million more acres in 2011 out of the question?” Maybe not. The guesstimates so far have ranged as high as 13 million acres. The Annual Cotton Grower acreage survey released at Beltwide pegged acreage at just under 12.5 million acres.
Most importantly, the trend for both acreage and prices is up.
Dollar Cotton Now, and Down the Road?
Jordan Lea gave his first Cotton Market Outlook at the opening session of the Production Conference.
Lea is CEO of Eastern Trading Co. in Greenville, SC, and is serving his second term as President of the American Cotton Shippers Assn.
“Gary Adams said before I came up here that nobody had ever addressed the Beltwide when cotton was $1.40,” he said.
Adams is NCC Vice President of Economics and Policy Analysis.
“I don’t think anyone of us could have imagined this happening, and it’s an exciting opportunity,” said Lea. “And honestly, what makes it even better is that there is continued optimism, relative to cotton.”
Lea said the price spike that started in late July was, “amazing in a lot of ways, and was more orderly than we would have anticipated, especially as a reflection of 2008 when we saw a similar reaction based on a dissimilar set of circumstances.”
In 2008, cotton prices spiked to over $1 in March, then plummeted to below 50 cents that same year.
Lea said the bright spot for cotton in the coming years is that we continue to make big crops, but we also continue to consume more than we produce. For example, he said the stocks-to-use ratio was at 55% in 2007 and is now down to 9.8%.
“That’s the lowest it’s ever been,” Lea said. “The last time cotton went to $1, the stocks-to-use ratio was 10% higher. I consider that very supportive of cotton prices this year, next year and even the following year.
“In 2007, we had a six-month residual supply of cotton, but right now we’re looking at a six-week residual supply of cotton. If you consider that there’s always about 30 days’ worth of cotton in transit — either on the ocean, on trucks, leaving warehouses — we have a two-week supply of residual cotton.”
Lea said the battle for acreage in the U.S., and even around the world, could get even more intense because grain stocks are also dropping while prices also rise. The stocks-to-use ratio for soybeans is now 5%, and is 6% for corn.
The Year That Will Be
Going back even to the days when his father founded Eastern Trading Co., Lea said there has never been a situation going into planting year where we could sell cotton for $1.
“I know where bean prices are, and I know where corn prices are, and I don’t deny that I can’t see the forest for the trees,” he said. “But I live in the Southeast, and I promise you that at $1, we’re going to grow cotton.
“It’s been incredible to witness and, needless to say, it makes me happy,” Lea continued. “I have a number of 12.4 million acres, and I think that’s wrong. I think it’s too low.”
Lea says it’s imperative that a grower develop a plan of action to take advantage of today’s markets:
- Sell dollar cotton.
- Major in the majors. Basis isn’t major, but your cash price is.
- Make a marketing plan and stick to it.
- Don’t ignore 2012 — prices have already hit 90 cents per pound.
- You vote. You pay taxes. You create jobs. Expect something for it. Don’t let the person you sent to Washington forget it.
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