“Who’s going to grow the cotton the world needs? I think there is going to be a world cotton deficit that needs to be supplied by the U.S.  Will Texas cotton production go ‘way up or will they diversify as much as they can into grains? What will the Southeast do? That area is a bit more friendly to cotton and they’ve seen improved yields over the last decade. I think they will be our competition in the Mid-South. The market will buy only as many acres of U.S. cotton as it needs, so the question becomes, who wants to supply those acres at whatever price is prevailing?”

India and Pakistan are becoming more important players in world cotton, Reichle says.

“Those two countries grow more cotton than any place in the world, but they have among the lowest yields — currently less than a bale per acre. If they can increase yields through seed technology and other production improvements, they may be the ones that fill the world’s need for cotton.”

With the outlook this year for some easing of very tight grain stocks, prices for corn, soybeans, and wheat have also been easing, he notes.

“If the Chinese continue to support the world cotton price through their reserve policies, and the price stays around 80 cents a pound, and we see corn prices in the $4 range and $11-$13 soybeans, cotton could begin to look a little more attractive to our growers, and I wouldn’t expect to see a further big acreage reduction on top of what we’ve already had.

“If cotton prices should rally a bit because supplies are so tight outside of China, we might even see an increase in acreage. I don’t think we’ll see cotton going back to the acreage we had in 2006, but in 2011, when cotton prices were good relative to grain prices, we did see acreage move back up. I think Mid-South farmers will continue to respond to market signals and prices in determining the crops they plant.”

But, Reichle says, the big question hanging over the cotton market is how China will deal with its stocks that constitute the world oversupply.

“It’s their job to figure out a way to reduce that oversupply. We believe one way they will do it is to reduce their own production — that they will give incentives to some of their farmers to grow grains instead of cotton. But that will probably take a while to work its way through the system.

“They also have to do something to create more competitiveness for cotton versus man-made fibers. They can’t continue to have a huge gap between the cost of cotton and man-made fibers to their mills. They’ve got to get production down and consumption up, so they can start to work down those reserves. And through all that, they need to continue to import cotton.

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“If they should decide they’re going to cut back on imports as much as they can, that will fix the supply tightness we have outside China.

“They have a tough balancing act,” Reichle says. “They need to continue importing cotton while working down their supplies, they need to increase consumption, and they need to decrease their production over coming years.

“We think they will do this gradually, and hopefully this will keep the price outside China around 80 cents to 85 cents per pound, which would make cotton relatively attractive if grain prices continue to erode from the big premium they’ve had the past few years.”