Dry weather in Texas and the potential impact of an El Nino on precipitation in Texas and India mean only one thing to market analysts speaking at the Ag Market Network’s April conference call – we’re in a weather market.

In Texas, “we are seeing the impact of a long-term drought,” said Jay Yates, Extension economist – risk management, Texas AgriLife Extension Service. “We had the third driest first 90 days of a year since the drought of the 1950s. We’re really having trouble keeping our land from blowing. The biggest bright spot is that last year, after we lost a lot of dryland cotton, we planted a lot of milo, so we have a lot more cover this year.

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“But if it doesn’t start raining pretty soon, we’re going to be looking at some really high abandonment numbers, especially on dryland. I think we will continue to see the expansion of the percentage of dryland acres in Texas, as water for irrigation continues to diminish and farmers concentrate their irrigation on smaller acreage.”

Some irrigated acres may face the prospect of not having enough water to irrigate for a full season, Yates added. “Everybody is hoping to get a stand established, then start praying for rain.”

The cotton market is also trying to balance a low export forecast with extremely low ending stocks. USDA recently forecast cotton exports at for 2013-14 at 10.9 million bales, compared to 13.3 million bales in 2012-13.

“What we’re seeing is the drought in Texas threatening U.S. crop size and exportable supply for the coming year,” said Carl Anderson, Extension professor emeritus, Texas A&M University. “The market is going to be very volatile and might change the topside of December 2014 futures considerably in a few months.”

Kelli Merritt, cotton producer, broker and merchant, from Lamesa, Texas, says July cotton still has the chance “to get over a dollar, just because of the short supply and the high quality of the crop. There is just not a lot of cotton available to sell right now.”

For new crop cotton, Merritt sees 85 cents as a high for December 2014, “and that could be short-lived. I think 82 cents is where I would look to hedge this crop. We’ve seen the December-July spread fluctuate from 1,000 points to 1,600 points, and now we’re starting to see it collapse. That is indicating that this market has really lost strength and will probably move down. It’s going to make it tough for December to get much higher.”

For old crop, Anderson agrees that there could be big spikes in price “but I’m going to go with a range of 86 cents to 98 cent range.

“New crop has potential to do something unusual, but what bothers me is that 90 percent of the west Texas cotton growing area is under dry to extremely dry conditions. You’re just not going to grow cotton on that unless some moisture comes along. If China makes a move and puts more cotton into the world market, we could see the market fold up and head for 75 cents, or even 70 cents. If you can, set a floor on December in the mid-80s, but be careful about putting a top on it. We’re in a very volatile situation.”

“For March and July, the market had traded from 86 cents to over 96 cents, which seems a likely range going forward,” said John Robinson, Extension economist, Texas A&M University. “For December, I see 72 cents on the low side and 85 cents on the high side. Once it gets into the low 80s, I think there will be a lot of hedge selling and growers ought to try and capture some of that.”

For old crop, Yates sees mid- to upper-90s on the top end, and not much lower than 80 cents on the low end. For new crop, Yates sees a top in the market of around 89 cents to 90 cents, “but if funds move into the stock market again or China starts releasing stocks, cotton in the low 70s is entirely possible.”

Merritt noted than ill-timed El Nino in India could produce some adverse weather there. “More bales of cotton would be affected in India than would be affected in west Texas.”

“We’re looking at a weather market with a short U.S. carryover,” said Yates.