Two years after cotton prices hit lofty levels, growers are facing considerably bleaker prospects, according to market analysts.
Spiking grain and soybean prices has resulted in projections for plunging cotton acreage in 2013, according to analysts speaking at the Ag Market Network’s recent conference call.
“I can’t think of anybody right now who would plant cotton unless they owned a gin,” said Mike Stevens a market analyst based in Louisiana. “As far as the price structure is concerned, cotton is not even competitive.”
In the Southeast and Mid-South, “anything less than a dollar a pound for cotton is not going to draw much interest,” Mississippi State professor emeritus O.A. Cleveland told Southeast Farm Press. “With soybeans at $17 and corn at $8, you’re going to see wholesale switching to soybeans and corn.”
Cotton futures are currently in the low- to mid-70-cent-per-pound range, according to information found on the National Cotton Council of America’s website. A year ago it was selling for 90 cents a pound and the price topped $2 in 2010.
Jarral Neeper, president of Bakersfield, Calif.-based Calcot 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.”
According to Southeast Farm Press, 2013 cotton acreage needs to be reduced, 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.
“We’re going to be able to create a production deficit (in cotton) next year without the pain,” said Joe Nicosia, chief executive of Allenberg Cotton Co. “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,” he added. “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.”
However, it does make for challenging price prognostication for 2012 and 2013, according to the analysts.
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.”
Still, 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,” he added. “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 told Southeast Farm Press 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.