Cotton Market Cotton Market OutlookOutlookJohn R.C. Robinson John R.C. Robinson
Professor and Extension Professor and Extension Economist-Cotton MarketingEconomist-Cotton Marketing
Department of Agricultural Economics Texas AgriLife Extension Service
Texas A&M University College Station, Texas
● Old Crop Situation: Uncertain supplies and demand
● Summary of USDA’s December Cotton supply/demand numbers
● New Crop price forecast: – Dec10 pattern may have higher prices
leading to lower prices
Discussion PointsDiscussion Points
Supply UncertaintySupply UncertaintyTexas started off very dry, and has lost most dryland production below I-10.
The High Plains and Rolling Plains have spotty from a mix of dry/wet weather, hail, etc. It is a very late crop.
Mid-South experienced unprecedented harvest-time rainfall that damaged their crop.
● Lingering effects of recession on consumer sentiment
● Cotton is tied more heavily to the general economy
● When will the U.S. and world economies really turn the corner?
Demand UncertaintiesDemand Uncertainties
World Per Capita Cotton UseWorld Per Capita Cotton Use
0.006
0.007
0.008
0.009
0.01019
70/1
971
1971
/197
219
72/1
973
1973
/197
419
74/1
975
1975
/197
619
76/1
977
1977
/197
819
78/1
979
1979
/198
019
80/1
981
1981
/198
219
82/1
983
1983
/198
419
84/1
985
1985
/198
619
86/1
987
1987
/198
819
88/1
989
1989
/199
019
90/1
991
1991
/199
219
92/1
993
1993
/199
419
94/1
995
1995
/199
619
96/1
997
1997
/199
819
98/1
999
1999
/200
020
00/2
001
2001
/200
220
02/2
003
2003
/200
420
04/2
005
2005
/200
620
06/2
007
2007
/200
820
08/2
009
2009
/201
0
Marketing Year
LB
S.
Shaded bars represent periods of economic recession. Cotton consumption tends to drop during those periods due to fewer purchases of clothes, home furnishings, etc.
Supply/Demand Numbers For Supply/Demand Numbers For Old Crop and New Crop Cotton Old Crop and New Crop Cotton
2009 supply question is mostly resolved by this time
with further tinkering likely
Net Positions ofNet Positions of Index FundsIndex Funds andand HedgeHedge FundsFunds vs.vs. Nearby Futures PricesNearby Futures Prices
The fund sector has helped fuel the Fall rally in cotton prices,
Source: Commitment of Traders Supplemental Report (Futures and Options)
Supply/Demand Numbers For Supply/Demand Numbers For Old Crop and New Crop Cotton Old Crop and New Crop Cotton
The demand side still has lot of lingering uncertainty from the recession impact.
U.S. Exports of All CottonU.S. Exports of All Cotton
0
100
200
300
400
500
8/6
/09
8/1
3/0
98
/20
/09
8/2
7/0
99
/3/0
99
/10
/09
9/1
7/0
99
/24
/09
10
/1/0
91
0/8
/09
10
/15
/09
10
/22
/09
10
/29
/09
11
/5/0
91
1/1
2/0
91
1/1
9/0
91
1/2
6/0
91
2/3
/09
12
/10
/09
12
/17
/09
12
/24
/09
12
/31
/09
1/7
/10
1/1
4/1
01
/21
/10
1/2
8/1
02
/4/1
02
/11
/10
2/1
8/1
02
/25
/10
3/4
/10
3/1
1/1
03
/18
/10
3/2
5/1
04
/1/1
04
/8/1
04
/15
/10
4/2
2/1
04
/29
/10
5/6
/10
5/1
3/1
05
/20
/10
5/2
7/1
06
/3/1
06
/10
/10
6/1
7/1
06
/24
/10
7/1
/10
7/8
/10
7/1
5/1
07
/22
/10
7/2
9/1
0
Weekly
Th
ou
san
d S
tati
stic
al B
ales The first export report of this marketing year (red dot)
came in below the needed weekly shipments (blue line) to reach USDA’s forecasted target of 10.5 million bales of U.S. exports in 2009/10.
Rising A-Index of World Prices in Rising A-Index of World Prices in Response to Declining Stock ForecastsResponse to Declining Stock Forecasts
0102030405060708090
Au
g-9
9Ja
n-0
0
Au
g-0
0Ja
n-0
1
Au
g-0
1Ja
n-0
2
Au
g-0
2Ja
n-0
3
Au
g-0
3Ja
n-0
4
Au
g-0
4Ja
n-0
5
Au
g-0
5Ja
n-0
6
Au
g-0
6Ja
n-0
7
Au
g-0
7Ja
n-0
8
Au
g-0
8Ja
n-0
9
Au
g-0
9D
ec-0
9
Rat
io
0102030405060708090
Pri
ce
A-Index
Monthly Forecasted World Stks-to-Use
The resulting stocks-to-use, and the upward revision from last month are both bearish.
1/5
/04
2/2
/04
3/1
/04
4/1
/04
5/3
/04
6/1
/04
7/1
/04
8/2
/04
9/1
/04
10/
1/04
11/
1/04
12/
1/04
1/3
/05
2/1
/05
3/1
/05
4/1
/05
5/2
/05
6/1
/05
7/1
/05
8/1
/05
9/1
/05
10/
3/05
11/
1/05
12/
1/05
1/3
/06
2/1
/06
3/1
/06
4/3
/06
5/1
/06
6/1
/06
7/3
/06
8/1
/06
9/1
/06
10/
2/06
11/
1/06
12/
1/06
1/3
/07
2/1
/07
3/1
/07
4/2
/07
5/1
/07
6/1
/07
7/2
/07
8/1
/07
9/4
/07
10/
1/07
11/
1/07
12/
3/07
1/2
/08
2/1
/08
3/3
/08
4/1
/08
5/1
/08
6/2
/08
7/1
/08
8/1
/08
9/2
/08
10/
1/08
11/
3/08
12/
1/08
1/2
/09
2/2
/09
3/2
/09
4/1
/09
5/1
/09
6/1
/09
7/1
/09
8/3
/09
9/1
/09
10/
1/09
12/
11/0
9
Daily
20
30
40
50
60
70
80
90
100
Cen
ts/L
b.Nearby Futures
AWP
“A” Index
Loan Rate (52¢)
Thus, “Loan Economics” may be less Thus, “Loan Economics” may be less of a factor in 2009/10 marketing year.of a factor in 2009/10 marketing year.
A-Index Composition (all 1-3/32")MOT Midd 52.00Memphis/Eastern Midd 52.25Brazilian Midd 53.50Pakistan Type 1503 54.50Benin BELA 54.50
“A” Index of World Prices (as of 12/11/09) 75.07 Adjustment to US location and grade -16.37 Adjusted World Price (AWP)
58.70 Loan Deficiency Payment (=Loan-AWP) 0.00
Expect smaller LDP’s this year due to world prices (green line) averaging around 60 cents.
Looking Ahead to Next YearLooking Ahead to Next Year
The 1st question is howmany acres get planted inresponse to high prices
The 2nd question is will the resulting world supply be not enough or more than enough to meet the world’s requirements.
When ending stocks don’t change much from year When ending stocks don’t change much from year to year, the pattern of Dec. futures is to gently trend to year, the pattern of Dec. futures is to gently trend lower over the fall. We could follow this pattern if the lower over the fall. We could follow this pattern if the numbers work out as projected in my previous table.numbers work out as projected in my previous table.
50
60
70
80
90
A S O N D J F M A M J J A S O N D
Cen
ts/L
b.
(mo
nth
ly)
50
60
70
80
90
Cen
ts/L
b.
(dai
ly)
Dec’10
Avg. Dec Futures in Stable Carryover Years
(’95, ’97, ’98, ’99)
In years when the ending stocks increase, the pattern In years when the ending stocks increase, the pattern of harvest-time prices is to fall harder in the summer of harvest-time prices is to fall harder in the summer and fall. This could happen with lots of supply and and fall. This could happen with lots of supply and
fuzzy demandfuzzy demand
50
55
60
65
70
75
80
A S O N D J F M A M J J A S O N D
Cen
ts/L
b.
(mo
nth
ly)
50
55
60
65
70
75
80
Cen
ts/L
b.
(dai
ly)
Dec’10 futures
Avg. Dec. Futures in Larger Carryover Years
(’91, ’92, ’96, ’00, ’01, ‘04)
The last time we had high winter-time prices The last time we had high winter-time prices was in 03-04. It created a supply response that was in 03-04. It created a supply response that outweighed demand, leading to lower prices.outweighed demand, leading to lower prices.
40
4550
5560
65
7075
80
A S O N D J F M A M J J A S O N D
Cen
ts/L
b.
Dec’04 Settlement Price
Dec’10 Settlement Price
World Cotton Harvested Acres vs. World Cotton Harvested Acres vs. Nearby Futures Settlement PriceNearby Futures Settlement Price
30
35
40
45
50
55
60
65
7020
00/0
1
2001
/02
2002
/03
2003
/04
2004
/05
2005
/06
2006
/07
2007
/08
2008
/09
2009
/10
Marketing Year
Cen
ts/L
b.
65
70
75
80
85
90
Mil
lio
n A
cres
Nearby Futures Harvested Acres
75+ cent Dec10 futures could attract a LOT of world acreage (as happened in early 2003/04), the resulting oversupply will pressure prices for the rest of the marketing year.
The Cotton Marketing PlannerThe Cotton Marketing Plannerhttp://agecon2.tamu.edu/people/faculty/robinson-john/index.htmlhttp://agecon2.tamu.edu/people/faculty/robinson-john/index.html
Welcome to John Robinson's Website on Cotton Marketing & Risk Management
Dr. John R.C. Robinson, Assoc. Professor and Extension Economist-Cotton Marketing, Department of Agricultural Economics, Texas AgriLife Extension Service, Texas A&M University, 2124 TAMU, College Station, TX 77843-2124
Ph:_(979) 845-8011 [email protected]
The Cotton Marketing Planner Newsletter focuses on farm-level implementation of strategies for Texas cotton growers to deal with yield and price risk. Contact me to receive it weekly by e-mail. Click to view what’s new on this page.
November 20, 2009
Cost Expectations
2009/10 Fundamentals and Outlook
A marketing plan is a contingency plan of actions that a grower would take in various possible, but ultimately uncertain, market situations. Developing and implementing a marketing plan begins with an updated estimate of expected production costs. Without accurate farm-specific cost information, it is impossible to set meaningful pricing goals to cover your production costs. Texas cotton growers have a number of available sources of information and programs to help them figure their production costs as accurately and completely as possible.
2009/10 U.S. Supply/Demand Projections . The November WASDE report made few albeit substantial adjustments to the Foreign and U.S. cotton supply and demand forecasts. Compared to their October report, USDA decreased 2009/10 U.S. production by 500,000 bales. Carry-in, domestic use, and export forecasts were unchanged, so the the bottom line was a 500,000 bale decrease in projected ending stocks for 2009/10 compared to the October report. This actually represents a small decrease in stocks/use over the 2008/09 marketing year.) Based on history, this represents a moderate supply/demand rationale for higher prices, and could explains some of the recent price rally. USDA's cash price forecast was shifted upwards three cents to a 52--60 cent range.