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Agriculture Today

Texas weather, world supply, demand key factors affecting cotton market

Texas weather, world supply, demand key factors affecting cotton market
PAT KOPECKI/Reprints at Wilson County cotton producers planted more than 3,580 acres in cotton in 2011 versus 1,897 acres in 2010, according to data from the Wilson County Farm Service Agency.

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March 21, 2012
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COLLEGE STATION -- The fate for cotton prices this year will rely on traditional factors such as supply and demand, but the wild card is the outcome of Texas weather as the effects of the 2011 drought linger, according to a Texas AgriLife Extension Service economist in a March 12 press release.

“One of the key question marks is how long of a drought will we have here in Texas and what is that going to do to U.S. production,” said Dr. John Robinson, AgriLife Extension cotton marketing economist.

In his office, Robinson pointed to the latest U.S. Drought Monitor map on a computer display, which depicted varying shades of yellow, brown, and red over much of Texas’ cotton acreage. The different colors represent various degrees of drought.

“We had 7.4 million acres planted last year in Texas, and I think we will have as much this year,” he said. “There’s still a relatively high insurance price with dry conditions prevailing in the southern and western parts of the state. Only time will tell.” Robinson said if ample rainfall is received, Texas cotton producers could produce 3 to 4 million extra bales, but “that’s if we have a good/fairly normal summer.”

“Overall, U.S. production could be fairly tight or we could have somewhat of a surplus, further pressuring prices a bit lower,” he said.

China has aggressively been buying its own cotton and purchasing imported cotton, putting those purchases into stockpiles, Robinson said.

“They’ve purchased over 13 million bales worth and their whole crop is 33 million bales,” he said. “That’s over a third of their crop that they’ve purchased and that has affected world prices.”

The key to price outlook is China’s intentions with the millions of bales of cotton the government has been purchasing, Robinson said.

“They’ve done this with oil before, and people think that 13 million bales of cotton and the imports that are on the shelf will create a supply problem,” Robinson said. “They’re doing this in the same way that the U.S. government maintains a strategic oil reserve. But we don’t know how long they will hold onto these large stockpiles of cotton.”

Robinson said world ending stocks are “large and bearish” with 61 million bales carried over from 2011. In India, government officials announced this week a ban on cotton exports in an attempt to balance export revenue with the needs of the country’s textile industry.

“Because of this, some see China buying even more cotton,” Robinson said. “Some analysts are predicting more tightness than I would. To me, I don’t view it as a bullish thing for the overall market. It’s not market controlled, it’s bureaucratic controlled.”

The overall world economic outlook will ultimately be a large factor in shaping cotton prices for the remainder of the year, Robinson said.

“If we have slow economic growth in the United States, and maybe a recession in Europe, this reduces demand for cotton and weighs on prices,” he said. “If we’ve got these supply problems, depending on what all happens, we could see a picture where we have a surplus of more cotton than we expected.”

Robinson said prices could be in a high range of 90 cents per pound and a low of 70 cents per pound if the United States has more production than expected.

For producers, Robinson said there are a few tools to use as a defense strategy to lower prices.

“If you think we will have weak prices, you can do some forward pricing,” he said. “There’s also the ability to hedge with options contracts.”

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