What is in this article?:
- Cotton market searches for domestic, global balance
- Striking a balance
- Balancing economic forces at home and abroad could reduce the ongoing tug-of-war faced by the U.S. cotton market and offer pricing opportunities for growers, says farm economist Gary Adams.
- Issues facing the U.S. cotton market include the ongoing competition on the demand side from cotton’s rival polyester, and strong prices for grain and oilseeds on the supply side.
- “I think the U.S. cotton market is searching for balance,” Adams told Arizona cotton growers and ginners in Carefree, Ariz.
Balancing global economic forces could reduce the tug-of-war faced by the U.S. cotton market, says National Cotton Council economist Gary Adams.
Striking a balance
The U.S. cotton industry will closely monitor how China implements its 2012 cotton purchase program and how much cotton India actually exports over the next six to 12 months.
“For the U.S. cotton industry, it’s all about striking a balance overall,” Adams said. “We need to find a balance with polyester prices on the downside, grain prices on the upside, and other issues.”
Weather is always one of the major issues that can make or break the U.S. cotton market through reduced yields. The eyes of the world are sharply focused on the U.S. Cotton Belt; especially in Texas, Oklahoma, and the Southeast region impacted by reduced rainfall in recent years.
“The U.S. cotton market will pay attention to how the weather pans out in these areas. This, along with the cotton policies held by China and India, will be major factors that can swing the U.S. cotton market,” said Adams.
The drought appears to have lessened its disastrous grip on Texas this spring due to increased rains, but pockets of dry weather still exist in the High Plains where most Texas cotton is grown. If timely rains continue across the U.S. Cotton Belt, higher yields could result. Yields would still tend to be lower compared to average, but better than last year’s drought-infused yield losses.
The potential exists this year for a 17-million-bale U.S. cotton crop, Adams says, higher than last year’s 15.6 million bales.
“It all boils down to timely rains,” Adams said.
Worldwide, Adams expects cotton production will fall this year to 115 million to 116 million bales; down from 123 million bales last year.
China will likely reduce cotton plantings by about 10 percent due to strong competition from food crops. Fiber acreage in Turkey could sink 20 percent while India could see a 10 percent acreage decline. Global cotton acreage, minus the U.S. acreage, could fall 6 million acres.
Another ongoing issue which impacts the U.S. cotton market is global mill use. Adams says worldwide mill use could increase 3 percent to 4 percent during the 2012-2013 marketing year; an encouraging sign for the U.S. cotton market. However, the growth will depend on continued improvements in the global economy and competitive prices between cotton and polyester.
“The key is to look at the bottom line for ending stocks. Barring some weather problems, the world crop harvested this fall is expected to exceed demand. As a result, the potential still exists to build stocks further by the end of the 2012 marketing year,” Adams said.
Looking ahead to cotton prices, Adams remains cautious.
“In the near term, I think cotton will start to pick up stability from current polyester prices,” the economist said. “This fall, we’ll see which pressures still exist. Key factors will include worldwide cotton yields, China’s cotton stock management, India’s export policy, and whether cotton can regain market share from polyester.”
After the fall harvest, the attention of the global cotton market will be focused on the demand side of the equation. U.S. producers hope prices move higher for domestic-grown cotton.