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Consider pricing new crop cotton

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At $1.10 per pound, old crop cotton prices have increased by 52 percent since the beginning of the year. But it’s not the only good-looking prom date out there. Soybeans are nearing $12 a bushel, up 15 percent on the year; wheat is $7 per bushel, up 30 percent; and corn is around $5.60, up 37 percent on the year. Analysts suggest selling some new crop cotton. Yes, it there’s a chance it could hit a dollar again, but on the bottom side, it could fall as low as 78-79 cents.

Any other time in agricultural history, prospects for cotton prices hitting 90 cents or higher for an upcoming season would mean big acreage shifts to the natural fiber. But these days, cotton isn’t the only good-looking prom date out there.

While the last cotton price I saw for old crop cotton was $1.10 a pound, which is up 52 percent on the year, consider that soybeans are nearing $12 a bushel and are up 15 percent on the year; wheat is $7 per bushel and is up 30 percent; and corn is around $5.60, up 37 percent on the year.

When you do the math, not a single crop or crop combination looks to be a loser. I’ve talked to several Mid-South producers who say they’ll stick close to their traditional rotations.

O.A. Cleveland, professor emeritus, Mississippi State University, says high cotton prices “may bring some acreage back to the Mid-South. We have plenty of ginning capacity. The problem that we see is the cost of getting back into cotton for some producers who may have sold cotton-specific equipment. This may prevent an abundance of acreage from coming back into cotton. But I would still anticipate a 10 percent increase.”

While the outlook for cotton prices remains strong, analysts advise producers to not wait for a top. Prices swings could thrill, or chill.

Cleveland “likes a $1.25 top for December 2010 cotton with 95 cents on the low end. If you have anything left from old crop, my stars, go ahead and sell it. It’s well above a dollar. On new crop, I’d sell as much as half of it. It could hit a dollar, but on the bottom side, I think there is still risk to take it down as low as 78-79 cents.”

 “I don’t have the foggiest idea on the upside,” Mike Stevens, Swiss Financial Services said of old crop futures. “On the downside, we will probably have some pretty substantial corrections, but not enough to get us below 90 cents.”

And as for new crop, Stevens says, “Be bullish, but be reasonable and use good sense.”

Texas A&M Extension economist John Robinson says the trading range for a year following record-level highs usually trends lower, “which infers new crop futures prices of 70-90 cents.”

Texas A&M professor emeritus Carl Anderson sees December 2010 futures “as low as 85-90 cents, to a possible high of $1.15-$1.20, with the potential for spikes that are completely out of sight.”

For December 2011, Anderson sees a low of 75-85 cents, with an upside of 95 cents.

Peter Egli with Plexus Cotton, believes old crop cotton prices will probably set a top in the coming weeks, and “as expected demand destruction occurs, prices could drop back to 90-95 cents.” Egli says restocking efforts in China will provide support for new crop cotton at around 80 cents, with the possibility of an upside move similar to 2010. 

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