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Cotton Market Outlook

Cotton Market Outlook. John Robinson Professor and Extension Economist-Cotton Marketing. Department of Agricultural Economics Texas AgriLife Extension Service Texas A&M University College Station, Texas. Discussion Points.

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Cotton Market Outlook

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  1. Cotton Market Outlook John Robinson Professor and Extension Economist-Cotton Marketing Department of Agricultural Economics Texas AgriLife Extension Service Texas A&M University College Station, Texas

  2. Discussion Points • Summary of USDA’s Cotton supply/demand numbers • Tight stocks and uncertain supplies • Apparently robust demand • Minimal Government Payments • Speculative Influence • Cotton futures price forecast: • Dec11 between 85-110 cents

  3. $1.50 COTTON!!!

  4. Cotton Stocks-to-Use Were/Are Very Tight, but Maybe Didn’t Justify $1.50

  5. World stocks-to-use have been this low before, but prices haven’t been this high A-Index Monthly Forecasted World Stks-to-Use The resulting stocks-to-use, and the upward revision from last month are both bearish.

  6. Nov. 15. China announces monetary tightening and most commodity prices decline. Some of the Causes Nov. 3. FED announces QEII details, $USD falls. Foreign cash prices take off. Spec funds expand net Long po- sitions. Russians impose wheat export ban. Pakistan flooding

  7. What Gave Us $1.50/lb. Cotton Futures? Cotton acreage and carryover stocks declined from 2006 through 2009, i.e., cotton repeatedly “lost” the annual battle for acreage. Drawdown of stocks worldwide. The fund sector jumped on the commodity bandwagon in July with the Russian wheat situation and ramped up cotton buying.. New crop supply reductions (e.g. major Pakistan floods, cold/wet weather in China) Late-season uncertainty about delayed harvests in China and India (who imposed export restriction) Foreign (especially Chinese) cash prices climbed towards $2.00 on fears of lower-than-forecasted carry-in stocks, fears of inadequate new crop supplies. Mill buyers may have also gotten caught in a corner with on-call contracts that were due. Inflationary money policies in the U.S. (and in China until early November)

  8. U.S. Exports of All Cotton, 2010/2011 Marketing Year We need to be shipping this much per week to reach USDA’s target of 15.75 million bales exported in 2010/11.

  9. What Is Outlook for Government Payments? • World prices are very high. • So are U.S. futures and U.S. cash prices.

  10. “Loan Economics” will not likely be a factor for 2010/11 marketing year. Generally only have LDP payments when A-Index is below 67 cents/lb. “A” Index Nearby Futures Loan Rate (52¢) AWP

  11. Also Very Slim Chance for CCPs for the 2010 crop. USDA is currently forecasting an average 2010/11 cotton farm price of 76 to 86 cents. This is off-the-chart on this CCP rate table, i.e., a ZERO CCP. So other than direct payment, revenue from the 2010 cotton crop will come from the market. Will next year be any different?

  12. Spec Influence • Fund Sector jumped on commodity bandwagon early in the rally. • Speculative buying appears to have tapered off (declining/level net long position) • Weak dollar is influential. • Makes U.S. exports more competitive • Attracts more spec money to commodities

  13. CFTC Snapshot of Net Position of Index Funds and Hedge Funds (No. of Futures Contracts) January 3, 2006 Through December 28, 2010 Source: Commitment of Traders Supplemental Report (Futures and Options)

  14. ICE Spechedge Snapshot of Net Position of All Speculators Net (Millions of Bales) Average Nearby Futures Price, January 6, 2006 – December 31, 2010

  15. Total Cotton Futures Open Interest January 1, 2009 – January 5, 2011

  16. U.S. Dollar Index (DX) vs. Nearby Cotton Futures Settlement Price

  17. Looking Ahead… 2011 is starting off very dry

  18. What About Next Year? • I still expect a supply response, i.e., cure to high prices is high prices – but not before Fall • More U.S. and foreign acres, with average yields, implies increase in ending stocks. • History suggests a decent, but still lower, trading range of cotton prices.

  19. Dec’11 Cotton Futures Could Follow 1995-98 Pattern The years after ‘95 saw strong but progressively lower price ranges

  20. Summary Points • Cotton futures price forecast could remain very strong, but probably lower range than in 2010. • Watch world supply response (acres planted, weather). • Watch out for basis widening with weather market and few deliverable supplies

  21. The Cotton Marketing Plannerhttp://agecon2.tamu.edu/people/faculty/robinson-john/index.html

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