It is the question that most cotton producers continue to ask about the 2011 crop season. No matter what part of the Belt is examined, it’s a recurring theme.
Can U.S. cotton’s momentum continue? After a mind-boggling 2010 season that saw increased cotton acres across the country and prices that soared into the $1.50 range, all indicators certainly point in a positive direction.
But, as most economists always say, market forces are completely out of a producer’s control. That is the way it has always been, and the new crop year will be no different.
Translated into layman’s language, it means a producer can’t influence global trends that may stretch from a trading floor of the Intercontinental Exchange in New York to a Chinese buyer sitting in front of a computer screen in Beijing.
The U.S. producer must simply prepare, adjust and make the best possible decisions when unusual market conditions exist. As for those uncontrollable factors that may continue to push this cotton momentum, there are several that are crucial.
Unique Cotton Environment
California Producers Ready
To Increase Acreage In 2011
Don Shurley, Georgia Extension economist, agrees that some things are out of a producer’s control, but today’s climate is a bit different from previous years.
“I agree that there are only so many things a farmer can control in this market,” he says. “But it is even more so when you are exporting three-fourths of your total production. There are so many factors influencing cotton demand right now. It’s pretty incredible.”
While cotton prices continue to be unpredictable, Shurley says that’s just the nature of the commodity. He believes that most farmers understand that volatility is a way of life now. The key to survival is knowing how to maintain flexibility in a marketing plan. He thinks many producers will face important decisions on how to price the 2011 crop. Should they go ahead and lock in prices now or wait for another possible runup in prices? That’s the question they face.
“Last year a lot of economists thought we were at the top of the market when we were at the 75 or 80-cent level,” Shurley says. “As we now know, it wound up at $1.40 and $1.50. This year we start out with the opportunity to forward contract cotton in the 80 to 90-cent range. How much are producers going to be willing to lock in at those levels?”
Shurley thinks it’s very tempting for producers to sit and consider the possibilities of another price surge – mainly because the 2011 season will be another tight supply-and-demand situation.
What Will China Do?
And then there is the China factor. Will the Chinese continue to import cotton if their mill demand increases? Will this trend continue to feed the global economic turnaround? These are factors to watch, according to Shurley, because they will inevitably affect all sectors of U.S. cotton.
Dollar cotton isn’t anything new to cotton producers. The phenomenon has happened more than once in the past, but the current environment is different from yet another standpoint. All commodities are enjoying high prices right now, and most economists find that unusual.
“Everything on the board has a high price,” says Shurley. “It almost makes you wonder if there isn’t another issue out there besides supply and demand. Maybe it’s the hedge funds and speculators. But there are obviously other things going on.”
When prices for corn, soybeans and wheat soared during the last two years, cotton was the commodity that was left out. But now because of lower stock levels and an increasing demand, cotton is now a part of the price surge.
Even with the bright outlook, Shurley believes there are reasons to proceed with caution as all parties continue to assess the current cotton price momentum.
Texas Waits And Watches
Every region of the Belt is unique in how it is responding to cotton’s turnaround. That’s why most experts differ in how they will deal with higher prices.
Veteran producer Woody Anderson of Colorado City, Texas, will be the first to admit that the current cotton environment is unlike anything he’s seen in his farming career. He kiddingly says that he has never sold cotton at the dollar level because of the timing of the price surge. But he knows that he is in a position now to price his 2011 cotton at 10 to 15 cents higher than any crop he’s had in the past.
“This is definitely the first time I’ve seen anything quite like this,” says Anderson. “And it’s remarkable that all of the commodity prices are so high right now. It took us five years to lower cotton stock levels, and I think it will take at least two or three years to build them back up. Cotton producers will benefit from that scenario.”
If the current cotton price holds steady and it stays dry in Texas, Anderson foresees an increase in the state’s cotton acreage. Simultaneously, he predicts that a lack of rainfall means there probably won’t be much of a winter wheat crop harvested in 2011.
The drought situation in Texas is a concern. Anderson says the state has received one inch of rain since September, and timely winter rains or snowfall are needed to rebuild soil moisture levels.
The veteran producer doesn’t think Texas will lose any cotton acres in 2011. He sees additional acres planted to cotton, but it all comes down to receiving necessary rainfall before spring and having access to a limited water supply.
Despite production challenges and increased input costs, Anderson says the mood in Texas is optimistic – especially with such attractive prices. He says most producers in his state are just hoping the high prices will continue through 2011 so that they can take advantage of them.
The weather, however, will always be the unpredictable factor in any discussion of Texas cotton production.
“It’s like the humbling effect that hangs over everybody’s head,” he says. “But, like I said, we have some opportunities in 2011 that don’t come along every year. That’s what has a lot of folks excited about this new crop season.”
Contact Tommy Horton at email@example.com or (901) 767-4020.