Two Western marketers predict upland cotton prices will remain bullish in the short- and long-term.
“For the next three months or so, we’ll have a relatively tight trading range for the December 2011 contract in the $1.15 to 1.25 per pound range on the low side and $1.35 to $1.45 per pound on the upside,” predicts Calcot President Jarral Neeper.
Calcot is a cotton cooperative with members in California, Arizona, New Mexico, and West Texas. The company is based in Bakersfield, Calif.
For the 2011 crop year, Neeper predicts trading in the $1.00 to $1.70 per pound range; most likely $1.20 to $1.40 per pound.
“That sounds pretty disappointing since we were just looking at $2 per pound,” Neeper explained. “Before we got to $2, $1.25 looked pretty good.”
Many growers thought 85 to 90 cents per pound looked great back in August and September. Growers who sold at those prices, Neeper says, are a key reason why prices soared later. Cotton prices cleared the $2 per pound record-price hurdle in February. Neeper says a repeat of $2 cotton is unlikely.
Painting a similar price outlook, cotton marketer John Chilton, president of Handwerker-Windburne, Inc., Peoria, Ariz., predicts the cotton market will remain strong.
“Will it stay $2 strong? I have a hard time believing that,” Chilton said. “I don’t believe the price will fall below a dollar anytime soon. Anywhere in this price range makes the cotton market profitable for growers.”
Futures prices in late April traded in the mid $1.50 per pound range. Chilton predicts $1-plus cotton prices into 2013 futures trading. The cotton market should remain strong due to intense acreage competition between corn, soybeans and cotton. The 10-year baseline price for corn is 200 percent higher; soybeans are 142 percent higher. This creates competition for acreage and inflates prices.
Neeper and Chilton spoke to a standing-room-only crowd during the joint annual meetings of the Arizona Cotton Growers Association and the Arizona Cotton Ginners Association in Carefree, Ariz., in late April.
The rapid rise in cotton prices is a “perfect storm” with ties to many domestic and international issues. Chilton points to the continued drawdown of U.S. cotton stocks; floods, fires, and rain in Pakistan, Australia, Russia, and northwest China; a 10 percent gross domestic product growth increase in Asia; the weakened U.S. dollar; and “consumerism” in China, India, and Southeast Asia.
China is rapidly becoming more westernized with an expanding middle class demanding more protein-based food and pricier consumer goods.
“The old tale is the Chinese father used to want a radio, a bike, and a bowl of noodles/rice every night,” Chilton said. “The new China wants a flat-screen TV, BMW 5 Series car, and an affluent house on the hill. In this consumerism environment, the Chinese are consuming copious quantities of everything including cotton.”
Neeper added, “The Chinese don’t want to live in a crowded apartment anymore. They want a larger place to live, more clothes, and higher quality food. This helps support higher grain prices which in turn helps keep a firm floor underneath cotton.”
The marketers concur anything is possible since cotton prices are impacted by many volatile factors. Weather, acreage competition, cotton consumption, polyester use, stocks on hand, global acreage competition, higher oil prices, and economic worries can shift cotton prices higher or lower.
Neeper says about 100 million cotton bales were produced worldwide during the 2009 crop year while actual cotton use (consumption) totaled about 113 million bales. World ending stocks declined precipitously – down 27 percent over the previous crop year.
In the 2010 crop year, global cotton production fell short again. China, the world’s largest cotton producer, yielded 29.5 million bales versus an expected 33 million bales. Flooding reduced Pakistan’s expected 11 million bale crop to 8.7 million bales.
Meanwhile, the crop in India totaled 25 million bales amid 27 to 28 million bale expectations. The final U.S. cotton tally of 18.1 million bales was down from 19 to 19.5 million bale projections.
“As a result, prices started out the marketing year (Aug. 1, 2010) at about 80 cents a pound. Just before the March 2011 contract went into the delivery period the price peaked at least synthetically at around $2.36 per pound,” Neeper said.
For now, the worldwide cotton “panic” appears over and prices are lower. The question is - have higher prices permanently “scarred” the demand for cotton, Neeper asked.
“It may have scarred the demand, but cotton supplies are still tight around the world,” Neeper said. “U.S. ending stocks this year are estimated at about 42 million bales; that’s 2.5 million bales lower than this time a year ago.”
Higher oil prices also threaten cotton consumption. Neeper said, “Oil prices are taking discretionary spending away from consumers who are trying to feed their families; they are not buying t-shirts.”
Looking to 2011-2012, Neeper believes worldwide cotton production will total about 126 million bales. The U.S. bale tally could reach 19 million, up 900,000 bales. About half of the U.S. cotton acreage is located in Texas where an ongoing severe drought could reduce production.
At best, Neeper estimates China could produce 31.5 million bales, up 2 million bales. In Pakistan, higher sugarcane prices are steering some growers away from cotton. He pegs Pakistani cotton production at up to 11 million bales, compared to 8.7 million bales a year earlier.
The crop in India could reach 27 million bales. Regions and countries with smaller cotton acreages - West Africa, Syria, Greece, and Central Asia – combined could produce 4 million additional bales in 2011.
The top issue driving cotton this year, Chilton says, is weather.
“West Texas (in late April) is dry with wind blowing at 50 miles per hour and 90 degrees every day,” Chilton said. “The North China Plain is behind on moisture. It’s important to remember that cotton production in the U.S., China and India is primarily rain-fed.
If growers do not achieve the expected crop this year, or cotton demand unexpectedly increases or some combination thereof, Neeper says cotton prices could reach $1.60 to $1.70/pound.