The key to cotton prices this year will likely hinge on export demand, says Angie Goodman. And to reach the USDA's projections for exports, “prices will have to stay low or world demand must pick up sharply.”
Sounds like the classic which-came-first-the-chicken-or-the-egg scenario.
For the U.S. to meet the 7-million-bale export figure, she says, “we'll need to ship 168,000 bales per month from now through July — and to do that, things are going to have to improve a lot over what they are now.
“If the demand doesn't surface,” says Goodman, who's with ACG Cotton Marketing at Lubbock, Texas, “we will be looking at another year of low prices. In that case, the saving grace will be higher loan deficiency payments.
“If other cotton-producing nations plant large acreages this season, we could have another year of large LDPs and low cash prices.”
Growers should, Goodman says, use rallies above 65 cents per pound as opportunities to use option contracts or combinations to nail down a floor price.
She spoke at the Farm Press-sponsored Southwest Crops Production Conference recently at Lubbock.
Rumors of cotton purchases by China “kept the price fairly strong through last December,” Goodman notes, “but when those sales didn't materialize, it began to weaken.”
With carryover pegged at 5.4 million bales, market demand “doesn't look really promising” for the upcoming crop year, she says, “although the USDA says consumption should be more than production,” a scenario that could add some strength to prices.
Consumption and weather will be important, she says. “Both the USDA and the International Cotton Advisory Committee expect consumption to be up through 2001-2002. If they're correct, and we avoid a recession, we could see prices strengthen into the new year.”
When making pricing decisions, Goodman says, producers should evaluate what's actually happening in the world cotton arena: “What is China doing? They're always a big influence on the world cotton price. What is consumption doing here and in other key markets? We can't just look at what's going on in the U.S., or in any single area; we have to look at the total picture and how it can affect price.”
U.S. cotton usage could “optimistically” hit 9.7-10 million bales in the coming year, Goodman says. Caribbean Basin countries and Mexico “should help to slowly build consumption numbers; we are their best source for high quality cotton.”
Producers still needing to sell 2001 crop cotton should watch the world price and related LDP amounts closely, Goodman says. “Price is always a product of supply and demand. While supply is up, demand hasn't materialized.”
If U.S. plantings are in the forecast 15.7 million to 16 million-acre range, that could result in a crop of 18 million to 20.5 million bales, depending on weather, yield, and abandonment, she notes. “If we use 10 million bales domestically, we'll need to export 8 million to prevent a buildup in supply.”
A lot of cotton producers are asking what can be done to improve cotton's prospects, Goodman says. “Many of them lost 6 cents to 10 cents a pound on quality last year and another 6 cents to 10 cents in the market — and that's tough. Those hard times were felt throughout the industry; more mills closed in 2000 than in any year of the last decade.”
Ironically, Goodman notes, “There is a tremendous market for cotton goods in the U.S. — but every country in the world wants a piece of that market.
“We're encouraging everyone to share their concerns and their ideas with their legislators or anyone who can influence changes and improvements in the farm bill that will result in producers being treated fairly and being provided a reasonable safety net.
“Producers need to have a program that will work as well in times of low prices as in times of high prices. They can stand low prices occasionally, but not year after year.”
While no one seems interested in a return to government set-asides, Goodman says, producers might do well to consider planting cotton “only on acres that work best for you,” and in years of low prices “look at alternate crops that require less input cost, if possible.”
Continued cooperation between all segments of the cotton industry “will ultimately benefit the entire industry,” she says.
Dan Kreig, professor of crop physiology at Texas Tech, noted that U.S. consumer preference for cotton has boosted actual usage in this country to about 23 million bales annually, counting the amount of American cotton that comes back in the form of imported products.
“With that kind of demand, we could grow a heck of a lot of cotton in this country, were it not for all the competition we have around the world,” he says.