Improving crop conditions could add at least 400,000 bales to the U.S. cotton crop this year, but declines in foreign production should keep cotton futures from taking another nosedive.
Texas growers could produce another 150,000 bales and Southeast/Mid-South growers an additional 250,000 bales above USDA's latest crop estimate, according to analysts who spoke during the Cotton Roundtable, a live Web presentation from the New York Board of Trade.
Under an excellent weather scenario for the rest of the season, “we could add 1 million bales to production, but that would require a long, open harvest and great weather in Texas,” said Joe Nicosia, CEO of Allenberg Cotton Co., in Memphis, Tenn.
“On the downside, I'm comfortable with a 17.2-million-bale crop, if we don't have normal weather from here on out.”
Another 400,000 bales won't be good news for the cotton markets, but some of the sting of higher production will be lessened by reduced competition from foreign producers.
Nicosia estimates domestic usage for 2001-02 at 7.6 million bales and an export number near 10.95 million bales, “leaving us with a carryover of almost 7.8 million bales going into 2002-03.
The carryover added to a 17.8-million-bale U.S. crop this year would produce a total supply of 25.55 million bales. “That's a lot of cotton, the largest total supply that we've had in recent history except for last year,” Nicosia said.
He pegged domestic usage for this year at 7.8 million bales and exports at 10.9 million bales. “But I think the export number can move substantially. One thing worrying me is that business has really turned quiet over the last few weeks, as prices have moved up. (New York futures rose nearly 200 points the day before the Roundtable.)
“Another thing that worries me is that China has sold a substantial amount of cotton for delivery over the next three to nine months. I can't help but think that if that cotton does get shipped that it's going to crowd U.S. exports on a one-to-one basis.
“We also have to add back 150,000 bales of what we call ‘unaccounted,’ which is essentially weight gain as cotton in storage gains moisture. That would leave us with a carryout for 2002-03 of 6.95 million bales, a fairly large number.”
Nicosia noted that the world cotton situation has changed significantly from a year ago, when production of 98.5 million bales and consumption of about 93.7 million bales produced a 5-million-bale surplus.
This year, “we have the world crop at 90 million bales, with a consumption of 96.3 million bales, a 6.3-million-bale deficit. This will return the world carryout situation back to traditional levels.”
This situation “proves that the market does work,” Nicosia said. “Cotton prices at 28 cents to 35 cents were low enough to discourage production around the world, particularly around the United States.”
On the other hand, “it's going to be interesting to see what the world's reaction in production will be to the 55-cent market currently available to producers in 2003.”
Nicosia noted that the United States “will finish this year with the largest free stocks carryout in recent history. Free stocks are stocks which are not tied up in the loan program that are available for immediate shipment.”
Free stocks “are really requiring the U.S. futures spreads to remain wide to provide enough incentive to carry the cotton. I expect a lot of additional cotton to make its way to the certificated stocks. So I think we'll see a buildup there.”
Nicosia added that “the future looks great for U.S. cotton producers. The farm bill is an absolutely wonderful tool. I really encourage producers to use it. The world loves U.S. cotton. It's one of their premium choices. Grow as much as you can as long as makes economic sense to do so.”
Here's a region-by-region wrap-up by other analysts who spoke at the Roundtable:
“The Mid-South and Southeast crops were off to very questionable starts,” said O.A. Cleveland, cotton marketing specialist and professor emeritus, Mississippi State University.
“But, as tends to be the case, the crops have made excellent progress in the last two to three weeks, and USDA now shows the crop condition at average to better-than-average.”
Crop conditions in central Alabama are “fairly good, although it's still a bit dry,” Cleveland said. “In south Alabama and the panhandle of Florida, there was a lot of late-planted cotton, but they've received moisture in the last two weeks and that's brought that crop on. They should have time to make an excellent crop if they continue to get moisture.”
However, extremely dry conditions have hurt the crop in Georgia. “That dry area extends up to about Florence, S.C. From there up into the North Carolina area, it does look a good bit better.”
Scattered moisture has been the story in Arkansas, “but the crop is starting to fruit extremely well,” Cleveland said. “The Arkansas and Missouri crops are little later than usual.”
Louisiana and Mississippi crops “have made outstanding progress in the last two weeks,” he said. “The Mississippi crop is fruiting extremely well. Every week, USDA is increasing the percentage of the crop in excellent condition for Louisiana and Mississippi.”
Texas has experienced a wide range of weather — from flooding to drought — so far this year, according to Carl Anderson, Extension economist at Texas A&M University.
Rains ranging from 20 to 30 inches over a two-day period flooded several non-agricultural areas, but provided just enough moisture for nearby drought-stricken areas, improving crop conditions significantly, according to Anderson.
According to USDA, Texas planted about 5.8 million acres of cotton this year, while Oklahoma and Kansas seeded 200,000 acres and 60,000 acres. Texas' Rio Grande Valley dryland crop, which was planted in February, was lost to drought for the second year, according to Anderson. “We had a very limited amount of irrigation for the crop. So there may be half a crop in that area.”
The Coastal Bend cotton crop suffered from a lack of rain during critical growing stages. “We have everything from acreage that has been zeroed out to some that's doing quite well.”
About 4 million acres of the Texas crop is in the Rolling Plains and Southern High Plains, a little over half of which is dryland. The area has received significant rainfall lately, “which was just what that area needed. We're off to a very good start on dryland which hasn't been making a crop in a long time.”
The irrigated crop, mostly north and west of Lubbock, “is doing well. But we're not close enough to start thinking about the finish. That crop requires a warm, sunny September for the crop to fully mature.
“But 75 percent of the crop is in good shape and could make average to better-than-average yields.”
The Oklahoma crop is doing well, noted Anderson, and likewise for new cotton-growing areas in Kansas.
In sum, “we think the Texas crop could be anywhere from 4.5 million to 5 million bales and the Oklahoma and Kansas crops another 300,000 bales for a total of 5 million to 5.1 million bales. That's based on today's conditions.”
“The story in the Far West this year is the same one we've seen for a number of years — a gradual decline in acres,” said Jarral Neeper, assistant vice president, call pool operations and economist at Calcot.
“This year, that decline was a little more accelerated. We saw a big switch out of cotton into alfalfa, tomatoes and silage. This year, we'll do somewhere around 460,000 acres, about a 30 percent drop from last year's 640,000 acres. Pima acres were unchanged.”
The Upland cotton acreage is the lowest in California since the late 1960s and early 1970s.
On the other hand, the California crop “has progressed as well as anybody could hope for.
“Insect pressure has been light and most growers are looking for good yields. We had a heat wave last week (early July) but it looks like damage from that is going to be limited.”
Neeper estimates California cotton production at 1.3 million bales of Upland cotton and 550,000 bales to 575,000 bales of Pima. Arizona planted 205,000 acres to 206,000 acres, 30,000 acres less than USDA's most recent estimate. “We look for a crop of 540,000 bales, compared to 675,000 bales a year ago.”
The Cotton Roundtable is sponsored by the Ag Market Network, the New York Board of Trade, Farm Press Publications and Bayer Crop Science.
A recording of the event is available on NYBOT's Website at www.nybot.com.