Cotton Prices Appear Range-Bound in Near Term
February 23, 2016 By Blair Fannin, Texas A&M AgriLife
Cotton prices are projected to remain range-bound in the near term due to large stocks held by China, coupled with depressed prices among all agricultural commodities.
“We’ve been stuck in the 60-cent to 67-cent (per pound) range for a while now,” said Dr. John Robinson, Texas A&M AgriLife Extension Service cotton marketing economist at College Station. “In fact, futures have dipped to 58 cents. There are a lot of similar things that were going on in 2015 that are repeating in 2016.”
Robinson said in 2015, wet conditions prevailed for the start of the year, much like what has occurred in 2016.
“And demand was weak in 2015 and that continues to be the case for 2016,” he said.
The Cotton Council projects some 9.1 million acres of cotton to be planted this season, Robinson said, “and it could be higher than that.”
“If we have 9.1 million acres and start wet, then conditions remain dry, that makes one wonder: will we have a short crop or not?” Robinson said.
There’s potential for the highest prices for 2016 to occur during summer, depending on how dry and hot conditions are in Texas and the southwest, he said. That could trigger a price rally temporarily, propping up prices into the 60-70 cent range.
“Otherwise, up until harvest we will see prices where they are now,” Robinson said.
Other market conditions include the demand for sportswear items that include more polyester than cotton.
“Polyester is considerably cheaper than cotton; it’s made from an oil extract,” he said. “The sportswear demand has been due to the fact that there is a less-cotton blend. The clothing has gotten lighter and you see women ages 25-40 favoring these athletic sportswear items (with less cotton).”
China continues to hold more than 60 million bales of cotton and could be unloading some of that surplus, further depressing current market prices, Robinson said. Overall for 2016, cotton farmers will have to maximize yields and make as many bales to the acre as possible to compensate for depressed prices.
Cost of production is in the 70-cent range, yet it is still rational to plant and produce cotton, providing they keep a sharp eye on fixed expenses, Robinson said.
“Crop insurance kicks in when the price declines below the cost of production, plus a 25 plus percent deductible,” he said. “Overall, the market is not very cheery right now. A farmer will have to have a perfect year where they produce lots and lots of pounds to compensate for prices in the 60s.”
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