Boom Times

Major League Baseball Hall-of-Famer Satchel Paige was right when it comes to sports. But let’s do look back at cotton market drivers for a moment so we’ll have a sense of where we are, and where we can go.

Just four seasons ago, the U.S. had a carryover of over 9 million bales of cotton. We were choking on cotton, and we had become the supplier of last resort. When there’s too much supply chasing too little demand, you know the lyrics to the hymn.

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But that changed when U.S. planted area dropped from nearly 15 million acres in 2006 to slightly less than 9 million in 2009. Prices slumped to less than 50 cents per pound and it was gloom and doom. But the market did its job and, based on fewer and fewer acres, drawdown reached in the neighborhood of 3 million bales. USDA had a projection of less than 2 million bales at the end of the last marketing year.

Now too much demand had started chasing too few stocks. And we found that there was a second verse to the hymn. Prices soared from the 40-cent range to almost $2.50, leaving in their wake the mystical land of Dollar Cotton. Dollar cotton has now become the rule rather than the exception, and cotton economists believe cotton will trade in a range of between 95 cents to as much as $1.15.

So with 2011 in the rearview window, we start putting 2012 in the high beams, and we have to ask ourselves, “where to now?”

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As usual, 2012 prices will be dictated by demand.

“In terms of where we are now, attention is focused on the demand side and a lot of uncertainty exists in the market as to the level of cotton demand,” says the National Cotton Council’s Vice President, Economics & Policy Analysis Dr. Gary Adams. “How strong is demand, given that prices have retreated from their highs? Obviously the uncertainty in the overall economy is going to be one of the factors that plays into the demand for cotton. How is the consumer going to respond?

“I do think that there are still some concerns about how much demand we’ll see in the year to come – USDA is not calling for much growth over the next several months if you look at their current balance sheet,” says Adams.

With apologies to the late, great Satchel Paige, we have to look back because polyester blends might be gaining on us and we must pay attention and react.

“We’re at a price level now where cotton is much more competitive with polyester. One of the things we saw when cotton moved in the spring to $1.50 or $2 per pound was that cotton prices really ran off and left polyester prices behind,” Adams says. “It was pretty clear at that point that we did see some shifting out of cotton and into polyester where they could adjust their blends. I think, obviously, when mills look at the prices they are paying for cotton, one of the big questions is: How can they control their costs?”

Now that we’ve begun to take a serious look at 2012, what’s in store?

“I think it depends on where you are in the Cotton Belt,” says Adams. “Farmers in the Mid-South and Southeast, when they look at December 2012, cotton will generally be trading in the 90s, and that gives them some optimism about next year.

“But having said that, I don’t know if they’ll plant as many acres as they did in 2011 simply because of the strong competition from corn and soybeans. Still, a lot of farmers are looking at December 2011 at a dollar and 2012 in the 90s and are encouraged that prices are holding at that level.”

Dollar cotton. You have to like the sound of that. Follow along as we offer six tips for making the most of dollar cotton.

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