As grain and soybean prices rise to the roof, 2013 cotton acreage appears headed for the cellar, according to analysts speaking at the Ag Market Network’s July conference call, broadcast from New York City.
“I can’t think of anybody right now who would plant cotton unless they owned a gin. As far as the price structure is concerned, cotton is not even competitive,” said Mike Stevens a market analyst based in Mandeville La.
In the Southeast and Mid-South, “anything less than a dollar a pound for cotton is not going to draw much interest,” said O.A. Cleveland, professor emeritus, Mississippi State University. “With soybeans at $17 and corn at $8, you’re going to see wholesale switching to soybeans and corn.”
Acreage losses in Texas will not be as significant, according to Carl Anderson, Extension professor emeritus, Texas A&M University. “I would think we would go from 6.8 million acres to as low as 5.5 million acres.”
Jarral Neeper, president of Calcot, Bakersfield, Calif., said “70-cent cotton just won’t work. Land rents are rising now due to alternative crops. Fertilizer prices have not come down much at all. There are just too many alternatives in California for producers to not look at other things.”
Of course, 2013 cotton acreage needs to come down anyway, as cotton ending stocks for this marketing year are projected at 72 million bales, an all-time high, and cotton consumption has declined around the globe.
Fortunately for those who do plant cotton, as long as grain and soybean prices remain high, cotton prices will not have to fall to discourage acreage, noted Joe Nicosia, CEO of Allenberg Cotton Co.
“We’re going to be able to create a production deficit (in cotton) next year without the pain,” Nicosia said. “Normally it would take 50-cent cotton to solve this surplus problem. Now cotton is still profitable (in the world), and alternative crops are extremely profitable. This will allow the world to have a cotton production deficit in 2013 and begin the process of working off the huge carryovers without a massive price drop.”
It does make for challenging price prognostication for 2012 and 2013, according to the analysts.
Anderson noted, “as we look at December 2012, there are a lot of things that might happen. Between now and September, I’m thinking about a range between 65 cents and 75 cents. But once we get into September and October, and we can determine more about the size of the U.S. and Indian cotton crops, we could see December 2012 perk up to the 80-cent level.
“I would think that to get cotton planted in Brazil and other major cotton producing areas and in the United States, we would need to see December 2013 move on into the 85-cent to 95-cent range to hold acres against current levels of grain prices.”
According to Stevens, the maximum potential for cotton prices “is 80 cents on the nearby December. And I would hope we could get to 90 cents for December 2013.”
“This market is telling you that it really doesn’t know what to expect,” Neeper said. “I don’t expect a lot of price movement, especially in the near-term. If we can get to 77 cents to 80 cents on a whim, that would be great. I would be surprised to see it going back to 65 cents.”
Neeper says in 2013, perceived tightness in old crop cotton could pull up new crop prices. “I don’t see December 2013 doing a whole lot between now and planting time. If December 2012 manages to get to 77 cents to 80 cents, then 2013 can get up to 84 cents to 86 cents between now and next spring. But that’s asking a lot given all of the headwinds and uncertainty out there.”
Cleveland bullish on cotton
Cleveland is bullish on cotton. “I’m on an island by myself apparently. But you have to put your big boy pants on. December 2012 is 15 cents to 20 cents under-valued. Over the last four or five months, USDA has made significant changes to India’s supply and demand report. It’s been very difficult to get India’s consumption right. And this week, all of a sudden, India shows up as a huge buyer of U.S. cotton. That’s telling us that demand is stronger there than we realized.”
Cleveland says the cotton market must also reflect India’s faltering monsoon and the expectation that Brazil’s production could drop by as much as 23 percent.
“December 2012 has to go to 85 cents, and I would not be surprised to see it go to 90 cents. December 2013 will go higher, but it won’t be enough to keep acreage in cotton. Corn and soybeans will continue to dominate, and they will steal acres for 2013.”
Nicosia says cotton prices will be protected somewhat on the downside by the expected loss of acres to grains and soybeans.
“But to the upside, I don’t see a big explosion in prices at all for 2012. Going into 2013, I think two things are going to happen. We’re going to create a deficit in world production, and the available supply in the world from other exporters could be tight. The competition that the United States faces in the export market is going to be drastically reduced in 2013-14, which sets the United States up for a big year, where prices could really react and the market takes off.”
Cotton consumption continues to be the bugaboo in the cotton outlook, Nicosia said. “I’m worried that we have only slightly over 5 million bales as demand base outside of China.”
Nicosia believes U.S. prices and Chinese prices will eventually converge, “where U.S. prices move up slightly and China’s moves down substantially. I think 2012 is going to be a flat year. In 2013, I wouldn’t sell any of my cotton at 75 cents or 76 cents. I would wait for something with an 8 in front of it. But don’t get too carried away. There are still 72 million bales of cotton in the world. Any explosion in price is still 12 months to 18 months off.”
The Cotton Roundtable is sponsored by Cotton Incorporated, Intercontinental Exchange, Certified FiberMax, the Ag Market Network and Farm Press Publications.