Though they’re more than a dozen time zones apart, what happens with Texas’ ongoing drought and what China does in terms of rebuilding its cotton reserves will be key influences on the cotton market in the months ahead, says O.A. Cleveland, Jr.

Toss into that mix the expectation of reduced acreage worldwide and an influx of hedge fund money into the market, and “it could make for an interesting year,” he said at the annual Mississippi Farm Bureau Federation Commodity Conference at Jackson.

Cleveland, who is Extension agricultural economics professor emeritus at Mississippi State University, says the beginning of the 2012 crop year “is beginning to look somewhat like a replay of last year, in that West Texas is extremely dry. They aren’t as dry in a relative sense compared to this time a year ago; they’ve had two or three inches of rain — but as far as cotton is concerned, they’re still extremely dry.

“Memphis cotton merchant Billy Dunavant made a comment many years ago that West Texas had never made a decent cotton crop without subsoil moisture, and that has pretty much held true year-in and year-out. We saw it in spades last year, when they had only about 1 inch of rainfall during the winter.”

Long range weather patterns are suggesting that West Texas and the Southwest will remain dry, Cleveland says, and that “some of that drought is going to ease over into the Delta area and move on eastward across the entire cotton belt. So, that’s something we have to be concerned about.”

With the current cotton/soybean and cotton/corn price ratios, he says, “We would anticipate a reduction in cotton acreage this year. USDA’s model has suggested that we would drop to about 12 million planted acres, which is extremely low.

“We talked with the Congressional Budget Office and USDA’s cotton people back at the first of December, and encouraged them to bring that figure up some, to at least 12.5 million.

“People in Texas say we ought to count on 13 million — many of their producers basically don’t have an alternative for cotton, whether it be dryland or not.

“Even so, we’d anticipate a smaller crop than what we picked this current season, which means we would draw stocks down somewhat. Stocks are still extremely low, around 3 million to 3.7 million bales projected at the end of this season, August 1, 2012.”

And Cleveland says, “We would anticipate exports would be up slightly this coming season. The increase would come largely as a result of the drop we’re anticipating in planted acres in China and around the globe because of strong soybean and corn prices. We’ll probably also see China concentrate more acres on grain crops, because they’re still trying to get a better hold on their food supply situation.

“We’re not out of the woods, by any stretch of the imagination, in terms of having soybean and corn carryover supplies that the market would be comfortable with.”

The drop in cotton carryover two years ago to about a 42 million bales “was extremely low, and that’s what led to $1-$2 cotton,” Cleveland says.