Sit back and enjoy the ride. That’s basically the advice marketing experts were giving producers this morning now that cotton futures have risen out of the 40s and 50s and into the low 60-cent range.
Speakers on today’s Ag Market Network teleconference call said December cotton futures have the upside potential to reach 65 to 68 cents per pound over the next few trading sessions. Prices could also fall back to the 52- to 54-cent area.
“I have no sense at this time that you need to do anything,” said Jarral Neeper, president of Calcot Ltd., and a guest speaker on the Ag Market Network conference call. “For now, just about any combination of futures and LDP will give you a good price. There’s no need to do anything until the market gets higher.”
Growers in almost every region of the Cotton Belt except the Far West have had plenty to worry about besides the markets in the last few weeks. Too much rain has delayed the planting of the crop in the Delta region while most of Texas has received too little moisture.
Planting delays, drought in Texas and the decision by the governments of China and India to not dip into their reserves of cotton have helped prices rise 15 cents per pound in the last two months.
“We have had quite a run-up,” said Neeper. “Once we got prices out of the 40s, they went through the 50s like a knife through hot butter. A lot of the textile mills didn’t anticipate not being able to buy cotton for more than prices in the 40s. They’ve had catching up to do.”
The textile mills have had other worries, as well. Last year at this time, economists were estimating world cotton consumption at 127 million bales. By August, that number had fallen to 123 million and is now reported to be around 110 million bales.
But the textile markets have begun to recover. “The retailers have done such a good job of getting product off the shelf that they caught the mills off guard,” said Neeper, who heads the producer cooperative based in Bakersfield, Calif. “Now the mills are scrambling to buy cotton.”
Neeper says demand should steady and increase slightly going forward. “We’re still struggling a little bit economically, but the general belief seems to be the worst is over. USDA has raised consumption from 110 million to 113 million bales and reduced world production from 107 million to 106.5 million bales. So a slight increase in production and slight increase in consumption should be positive.”
For now, the cotton market could be settling into a trading range of 54 to 64 cents per pound, according to Mike Stevens of Swiss Financial Services.
“Some of the recent strength has been due to technical factors,” he said. “Also, the poor economic reports have not been as poor as expected. We’re seeing some optimism creeping back in.”
Growers who are looking for marketing advice should consider buying a call with December between 60 and 64 cents, says Neeper. “From 65 on, I would think about selling futures and buying a put option. It could be a fun summer.”