EDITOR’S NOTE: As cotton prices continue to climb to historically high levels, producers are trying to make the best possible planting and marketing decisions in 2011. In the following pages, four producers – Bob McLendon (Georgia), Kenneth Hood (Mississippi), Bill Lovelady (Texas) and Dennis Palmer (Arizona) – offer their thoughts on the current environment for cotton.
This is my 37th year in farming, and I don’t think I have seen anything quite like this. Last year was the most profitable season I’ve ever had, and I expect another excellent year in 2011 because of our ability to irrigate in Georgia and our farm’s ability to make a good crop.
Of course, a lot of things can happen before we harvest a crop and sell our cotton, corn and peanuts.
Naturally, I am thankful that I have lived to see these better cotton prices. However, I have sense enough to know that they probably won’t last. I want to believe they will last longer than we think. We have had high prices before, but this time we have real demand for cotton that we haven’t had in the past.
I think the cheap dollar and some other factors are also causing this price increase. In my view, cotton has a supply problem right now, and I am hoping this trend will last for more than one year.
This is new territory. It’s something we’ve never seen, and it’s hard to prepare. I don’t guess any of us were prepared for it because, if we had, we wouldn’t have sold our cotton last year at 77 cents. As I speak here in mid-February, the price is close to $2.
Keep in mind that this price could go down as
fast it went up. For example, if the government
changed its policy on the blender’s credit for
corn and the ethanol market, that would really
knock the corn market down in a hurry.
If the hedge funds and speculators and other type investors wanted to take their money out of the commodities, we would take a real licking. You don’t know what those folks are going to do. Think about it. We’re talking about $500 billion tied up in the commodity market.
We all remember what happened in March of 2008 when we had the big runup in prices. Still, having said that, I don’t think I’ve ever seen anything like this price hike for cotton.
We haven’t seen these kinds of cotton prices since the Civil War. Back then, it was the demand in Europe that ran up the price. I’d say this is pretty historic no matter what kind of measuring stick you’re using.
What are the right decisions for a farmer?
Well, if you’re hedging, it’s very dangerous because it takes so much money, and the market fluctuates so much. I think cash contracts are about the only realistic way to go for a farmer as he pursues these price contracts. I would also tell folks to put some of their money back because these good times may not last, and you’ll need a nest egg.
I contract my crops, and I do some hedging. I sold most of my cotton last year, but I am also a member of Staplcotn’s seasonal pool. I called some cotton and sold it for a little better than 77 cents. That was a good price at the time. In the seasonal pool, Staplcotn will do better than I did.
I hope these good prices will continue at this level. I really am hoping for that, but, as I said before, I don’t really expect it to last too long. Who knows? Maybe I’ll be surprised.
One thing I know for sure. With this kind of price environment, cotton is picking up acreage every day. I am looking for Georgia to pick up 80,000 additional acres and maybe a six percent increase.
At these current prices, cotton is more profitable than corn even if corn yields 200 bushels at $6.50.
A farmer needs to know which crop is most profitable and respond accordingly. That may sound like a simple answer to a complicated situation, but that’s what it comes down to in the final analysis.
Bob McLendon is a cotton, corn and peanut producer in Leary, Ga. This is his 37th crop season.