The potential for continued sideways movement in the cotton market and tempting grain prices could slash cotton acres in the Mid-South significantly more than the National Cotton Council's January projection, according to cotton analysts in the Ag Market Network's March 13 teleconference.
The analysts agree that Mid-South cotton plantings could fall below 3 million acres in 2007, representing a 30 percent decline. Southeast cotton producers are expected to cut acres by 26 percent.
The NCC had pegged declines of 19 percent for the Mid-South and 22 percent for the Southeast.
A big reason for price stagnation has to do with a changing world situation for old crop cotton, noted Jarral Neeper, Calcot, Inc., Bakersfield, Calif. This includes a USDA March 9 forecast of larger India cotton production. The 500,000 bale increase “is not good news if you're looking to get rid of Indian cotton so the United States can move some of its cotton into China.”
Neeper adds that China is going to do whatever it can to use its domestic stocks “before it has to come to the world market, which is a suggestion that their cotton crop is at least as big as they say it is and perhaps a little larger. Total Chinese import needs for the rest of the crop year are at least a million bales lower than what USDA is carrying.”
The reduction in import demand by China results in lower U.S. projected exports to around 13.4 million bales and higher U.S. ending stocks of 9.4 million bales, “which is not a very pretty picture. And I don't think USDA is through lowering exports and raising ending stocks.”
Assuming the United States can capture a 40 percent marketshare of China's imports for the rest of the year, estimated at a total of 11.25 million bales, “then U.S. shipments between the end of January and the end of the crop year need to be 4.5 million bales. To ship that much, we would need to sell 4.8 million running bales.”
Going into the 2007-08 crop year, “we have a market that is going nowhere,” Neeper says. “Every time the market dips down, we get a little support out of the trade as they're making sales, and every time the market goes up, we're getting some resistance due to the knowledge that we have a large carryover.”
The combination of stagnant cotton prices and a bull market for corn could lead to substantial declines in U.S. planted cotton acreage this spring, says Neeper. “Right now, I'm all the way down to 12.23 million acres, down 20 percent from last year.
“The Southeast is down 26 percent, to 2.48 million acres, the Mid-South is down 30 percent, to 2.97 million acres, Texas, Oklahoma and Kansas are at 6 million acres, down 12 percent, and upland acres in the Far West are 440,000 acres, down 16 percent. In the Far West, the decline in upland acres will be offset somewhat by a 6 percent increase in Pima acres to 345,000 acres.”
If the United States harvests 11.24 million acres, a production estimate of 17.9 million bales “would be a welcome relief, I guess, compared to 21 million bales. But when you add in 9.4 million bales of carryover, that still gives us quite a substantial amount of cotton, 27 million to 28 million bales of cotton to market.”
Neeper believes with a little luck, U.S. ending stocks could be worked down to 5 million to 6 million bales. “Again China is going to be the mystery this year as to how much cotton they're really going to need.”
Neeper projects a 117-million bale world crop for 2007-08. “If you assume that the United States in round numbers has 18 million bales, then the rest of the world would be producing a record 99 million bales of cotton. All kinds of numbers are coming out of China. Clearly, the prices in China have done nothing to discourage growers from planting anything but cotton this year.”
Neeper believes that China will not repeat its record yield of 2006, which should result in a slight decline in production from 30.9 million bales in 2006 to 30 million bales in 2007.
“We're looking at an increase in all other foreign countries of around 5 million bales. Projected world consumption, while not robust, is very steady at 122 million to 124 million bales, so we will have a deficit this year of about 7 million bales.”
Neeper says the “market is getting close to an inflection point, and it will turn from a buyers' market into a sellers' market. But with these kinds of stock numbers, we're at least a year from a major inflection point, to where we see the sellers have a little bit more influence on prices.
“If we have a crop problem at all, and we don't get anywhere near that 117 million bales for the world, this could come as early as August or September. So we're probably going to do a lot of nothing for quite some time.”
Carl Anderson, professor emeritus, Texas A&M University, noted that good rains in Texas so far “make us optimistic that we're going to get a crop up this year, and we hope we don't lose as many acres. We're going to cut acres more than the 400,005 acres the NCC report showed — we'll easily come down another 300,000 acres to 400,000 acres.”
One complication is that Texas growers “are having a hard time finding corn and grain sorghum seed for what they may want to plant. We also have some handling and storage problems all up and down the Delta, which hopefully will be addressed sometime between now and harvest.”
If there is a smaller crop in the United States, Anderson projects a 5-cent bump in prices, “which could happen anytime after we get our September crop report. So we may see stronger prices for December 2007 futures, but nothing I see will run it up very high above 60 cents at best.”
One fly in the ointment would be if U.S. growers continue to increase cotton yields, according to O.A. Cleveland, Mississippi State University professor emeritus. “For five years now, in round numbers, we've had record yields. The genetics out there have definitely improved, and we're starting to see this improvement internationally.
“So we can't discount the fact that we could continue to have record world yields and even increased yields in the United States.”