I have never seen anything quite like this current cotton price surge. Is the glass half full or half empty? Sometimes I’m not really sure. With these high prices, a lot of good things can happen, but a lot of bad things also can happen. We hope that cotton will stay at this price level for a long time. In a perfect world, we want it to be where a producer can survive quite easily in this type of market.
I like to compare this environment to gas prices from a long time ago. I can recall those long lines and low prices at the gas station and the so-called shortages back in the 1970s. My hope now is that these commodity prices can get up to higher levels and stay there.
Also keep in mind that a lot of people in the business world make money on agriculture. Besides the farmer, you’re talking about a lot of folks in the supply and retail chain who benefit from this industry.
Trying to come up with a good strategy to maximize profits in this environment is very difficult. You simply don’t know where the market is going. You don’t know if it’s going to crash, and you certainly don’t know how long these record prices will last.
Even with the prices we’ve experienced lately at the $1.90 level, you have to remember that there isn’t that much cotton out there. If you sold any cotton, you probably lost money the next day when the price kept climbing.
We just can’t believe what we’re seeing. At our
farm here in Thatcher, Ariz., we believe in locking
in a price and strategy so that we’re protected.
Everybody knows that the Palmer family uses
Calcot to market its cotton, and we’ve had great
results in going that route.
My advice to anybody reading this article is don’t
get too greedy in trying to find that top price. I’ve
been told by the experts that you can get into trouble doing it that way.
Basically, a farmer has to stick to his fundamentals in a cotton market like the one we’re in now. That’s why Calcot helps me develop a strategy where I can be safe. We like to utilize the seasonal pool with Calcot, and it protects us no matter what happens in the market.
I know of some farmers who have half their cotton in a seasonal pool and the other half in a call pool. You don’t get burned in this situation, and yet it can be a safe way to go.
I highly endorse the strategy that economists and farmers talk about these days where you can lock in a price you can live with and go forward. That’s a sound decision. In some industries, you can make a bad decision and change it. In cotton, it’s different. You market your cotton, and it’s a done deal.
My hope is that this price momentum will continue for the next two to three years. I think we have a chance of that happening because of the global cotton shortage and low stock levels. Whenever the price does level off, I hope that it will be in a good range and maybe won’t be so volatile.
I tend to agree with a lot of the economists who say this trend could last for at least two to three years. It will definitely take that long to increase the stock levels.
And what about the overseas markets? Do we really know what’s going on over there? I saw a television report the other night about a Chinese farmer who was storing cotton in his house. I guess he was hoarding it to make sure he had enough when he’s ready to sell. I suppose that cotton is pretty valuable no matter what country you’re in these days.
Let me conclude by saying that I wish I could be jumping up and down with excitement about these prices. I guess I’m just nervous. In the last six months, cotton prices have jumped by 125 percent. It leads all other commodities, but I look at it as a market correction. This is where cotton should have been all along. To me, it means that cotton is back in the ballgame with everybody else.
I hope it’s a good year for your crop no matter where you farm.
Dennis Palmer is part of a family farm operation in Thatcher, Ariz., that produces cotton, wheat and alfalfa hay.
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