The cotton market will likely remain sluggish for the remainder of 2001, according to economist Carl Anderson with Texas A&M University.
“With energy, irrigation and fertilizer prices increasing substantially, producers are facing a serious cost-price squeeze,” Anderson says. “Unless production for the coming year is reduced by fewer acres and/or bad weather, cotton producers will continue coping with low income and financial stress for another year.”
Fully expecting the A index to head back to the mid-sixties to high-sixties sometime this spring and understanding that the world market is full of weather and policy uncertainties, Anderson recommends growers set a price floor to allow the benefit of unexpected higher prices at a later date.
“Cotton growers will need to watch for any price rallies that might present pricing opportunities that comfortably exceed the Commodity Credit Corporation (CCC) loan rate,” he says. “The usual seasonal price increase in the April, May and June period might see December 2001 futures back in the mid- to high-sixty-cent range.”
Any potential rally in cotton prices, Anderson says, hinges on 2001 U.S. cotton production coming in below 18 million bales. That, however, doesn't appear likely as planting intention increases are expected to boost domestic production to 19 million bales. “The market is indicating to producers that they should be planting fewer acres this year instead of more.”
In addition, USDA's February supply-demand report cuts U.S. exports by 300,000 bales and domestic use by 100,000. “That boosted carryover from the 2000-01 crop to an abundant 4.5 million bales from a plentiful 4.1 for this season,” Anderson says. “World carryover is sufficient to hold stocks-to-use around 40 percent for the season and, according to early planting indications, for the new season as well.”
Adding to these bearish market indicators are both an oversupply of textiles in the world market and increased production in China, he says. “The decline in the A index by several cents indicates a slowdown in the buying of cotton by mills in foreign countries.”