Despite the uncertainty in the world, U.S. cotton profitability is looking better compared to corn, which had a bumper crop and record production in 2013, and is now dealing with significantly lower prices.

“Cottonseed revenues have been excellent, and when you add all of these other things to it, cotton actually pencils out to be the best crop to grow in the Delta, Texas and the Southeast.”

There is still bullishness in U.S. old crop fundamentals, Nicosia added. “USDA currently estimates the 2013-14 cotton crop with a carryout of 3 million bales. But we have three areas of doubt — crop size, our domestic use and exports.”

Nicosia noted that according to classing information from USDA’s Agricultural Marketing Service, “the 2013 crop looks like it’s going be about 300,000 bales short of previous estimates. That alone could cut our carryout to 2.7 million bales. We think domestic use is going up, and that could take us down to 2.6 million bales. Exports will be driven by U.S. price competitiveness and the amount of import quota issued by China.”

He estimates that ending stocks for 2013-14 could range between 1.5 million bales and 3.7 million bales. “The difference between 1.5 million bales and 3.7 million bales in carryout is about 25 cents a pound.”

With more trade competition, Nicosia said the United States has to be ready to ship cotton when called upon. “It’s crucial that the United States can ship its cotton when it’s needed and efficiently. China imported 2.8 million bales in December. We’re the largest exporter in the world, and we only got 300,000 bales of it. India alone took 1.6 million bales. If we had gotten an extra million, imagine what our carryout would be today and what our prices would be.”

Nicosia said the United States is helping its own cause somewhat with the recent resurgence in its domestic textile industry. “We think domestic consumption is going to move back toward 4 million bales within the next 12 to 18 months.”

Nicosia says sustaining new crop prices over 80 cents will be difficult unless China continues to hold cotton off the market, or there is a weather disaster in a major producing area.

Growers should be aware of the inverse between old crop and new crop futures. “It’s about 10 cents today. What inverses tell you is that cotton is worth less in the future. So be careful that you don’t hold any inventory this year through that inverse. That’s a surefire loss.”

 

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