Cotton continues to trend upward with both old crop (May13) and new crop (Dec13) nearing the 85-cent mark.
The uptrend is starting to show a little “nervousness” taking on a little more sideways look. But it seems the bulls had 85 cents in their eyes and now we’re essentially there. I wouldn’t consider the uptrend “broken” until we close down below about 83 cents.
May13 is traded at just under 84 cents Feb. 22 and up slightly from Feb. 21. May13 closed at 84.46 on Feb. 20 — the highest daily close in 9 months. May has been in mostly the 83 to 84 cent range now for 3 weeks.
For spot market (recap) sales, the basis is currently -135 May for 31-3/35 and -400 May for 41-4/34.
Dec13 is also traded at just under 84 cents Feb. 22 and also set a new near-term high close on Feb. 20 at 84.27 cents. Dec13 has increased about a penny over the past 2 weeks — again it’s starting to look and feel like a bit of a slowdown.
Most contracts in the Southeast (or at least here in Georgia) will be -200 Dec13 so this represents ample opportunity to lock in 80 cents or even better on whatever portion of this years’ expected production you care to.
It really doesn’t matter which side of the fence you’re on (whether you think prices will move even higher or move lower), this uptrend is most likely too good to turn down if you’ve still got old crop to sell or are looking to book some of your expected new crop.
No one knows where prices will go. But, with Dec13 now standing at near the 85-cent mark, I think risk to the downside is a little greater than potential to the upside right now
Several factors in play
As we move forward, there are several factors in play that will determine if we can hold this level, move even higher, or retreat lower.
• I think there’s beginning to be general consensus that the National Cotton Council’s 9.015 acreage number is too low. How much will we actually plant?
• What will be China’s policy on using its reserves? If for whatever reason that cotton will not be used, that changes the global supply picture significantly.
• How will prices at 85 (or higher should we dare to go there) vs. prices at 75 cents impact U.S. exports and China’s use of its reserves? As stocks move into the pipeline, this will act as a cap on price.
• What is the outlook for Southern Hemisphere (mainly Australia and Brazil) production? This crop will be harvested and available this spring and summer and compete for exports.
Planting decisions for 2013 will depend on costs, prices as we get closer to planting time and expected season average prices, yields, weather, and risk management (crop insurance).
It’s the nature of farming that you have to make a decision now based on a largely unknown future. Farmers make a decision to plant this much of one crop and this much of another based on prices they largely have no control over. Prices can change and you can end up looking back and saying you may have done it differently had you known how things would eventually work out.
In planting decisions, it’s “relative” prices that are important. The fact that cotton (Dec13 futures) is now about 84 cents is not as important as how that compares with other cropping alternatives. Corn (Dec13) was once over $6.50, but now stands closer to $5.50. Soybeans (Nov13) were once close to $14, but now stand at under $13. So, cotton seems to be getting “bullish” while corn and soybeans appear more “bearish”.
For many Southeast cotton growers, peanuts are also a very important crop. Peanut prices and acreage are expected to be down, but since acreage will be down, prices could strengthen a bit after harvest based on good demand and exports.