Next month’s August report will be the first actual survey-based estimate of 2012 harvest acres and yield. Expectation seems to be that the U.S. crop may get a little smaller than the current 17 million bale estimate. Whether this will provide additional spark to the market remains to be seen.

If there continues to be U.S. and global economic concerns and demand uncertainty, shorter supplies become less of a concern.

Bullish/supportive news in the July report included a 200,000 bale increase in expected 2012 crop year U.S. exports, expected 2012 foreign production was cut 1.5 million bales (accounted for almost entirely by cuts in India and Pakistan), and World 2012-13 expected ending stocks reduced by just over 2 million bales.

On the bearish/negative side, World demand was trimmed slightly, but essentially unchanged from the June estimate (reduced 500,000 bales for China) and as a result Chinese ending stocks raised by the same amount.

In short, the numbers are “supportive”, but only marginally so and can easily be impacted by any number of positive and negative factors as we move forward from here.

Cotton price and competitiveness

Cotton seems to have set a “floor” or “bottom” around the 70-cent area. Dec12 futures Friday were currently around 72.5 cents — up around 2.5 cents from Thursday and about 3 cents for the last week.

But let’s be clear, prices have moved sideways the entire month of July. There has been little movement within a band of roughly 70 to just under 73 cents. Prices rallied Friday but were down 109 points (1.09 cents) Thursday — paying little attention to USDA’s July numbers.

Prices seem to have stabilized and improved from the earlier lows in the 65 to 68-cent area based on a combination of the June acreage numbers, the July numbers, occasional good U.S. economic news, changes in the relative value of the dollar, and export reports. Friday’s rally was in-part sparked by good economic news out of China. In turn, U.S. markets and commodities were also up.

USDA-AMS reports that only 10  percent of the expected 2012 crop has been contracted to date. Considering that cotton was above 90 cents for months, this is surprising. Because so little is priced, as prices rally producers may increase sales/contracting. If demand is weak, a large amount of selling could cap prices or widen the basis.

Due to drought in the Midwest and reduced yield prospects, corn and soybean prices have skyrocketed. Soybeans (Nov futures) are over $15 and corn (Dec futures) over $7. If cotton remains flat and corn and soybeans remain high, cotton acreage will decline in 2013.

It is not automatic/certain that cotton will need to get in a bidding war with corn and soybeans for acreage. Demand is weak and stocks are very high. So, how much cotton needs to be planted? Improved demand and beginning to pull stocks down is the only cure for prices.

Having said that, as we approach next planting season, if corn and soybean prices are high for 2013 production, cotton will most likely increase some. This could pull remaining prices for the 2012 crop up with it and provide post-harvest marketing opportunities.