Who would have thought it?

In all those years when Delta farmers were planting millions of acres of corn to feed their mules, who would have believed the Mid-South's cotton acreage might one day depend on the price of corn?

As strange as it would have seemed to their grandfathers and great-grandfathers, Delta farmers appear to be keeping as close an eye on Chicago Board of Trade corn futures as they normally would New York Cotton Exchange futures this winter.

Monitoring corn prices may have taken on new significance following the Jan. 12 Crop Production Report when USDA reduced its estimate of the 2006 corn crop by 210 million bushels and of 2006-07 corn ending stocks from 935 million bushels to 752 million bushels.

As a result, analysts said, May corn futures, which were limit up (from $3.87 to $4.07 per bushel) on Jan. 12, could spike to between $4.20 and $4.50 per bushel.

“The corn crop was quite a bit smaller than most people thought,” said Alan Kluis, president of Northland Commodities LLC. Kluis was one of those predicting sharply higher corn futures due to the lower stocks.

Cotton analysts were already forecasting cotton producers could reduce their 2007 acres by at least 10 percent when March corn futures were trading in the $3.50 per bushel range before the crop report.

According to one estimate, the largest regional reduction — 16 percent — was expected in the Mid-South where growers have been talking about large shifts of acreage to corn since last fall. Southeast farmers could decrease plantings by 6 percent and those in the Southwest and West by a smaller amount.

Plantings of 13.9 million acres could result in a 2007 crop of 20.3 million bales or 950,000 fewer bales than in 2006, said Jarral Neeper, vice president of marketing for Calcot Limited, who spoke on the U.S. and World Market Outlook at the Beltwide Cotton Conferences.

Neeper's presentation was made on Jan. 11 — before the Jan. 12 crop report became public — but he said in a later interview that the smaller corn projection by USDA would not cause him to revise his forecast.

“If anything, I think it makes me more comfortable with my numbers,” he said. “I would like to think the higher corn prices might entice more acres into corn, but I'm not sure that will happen. Farmers still have to make payments for cotton pickers and gins still have to have cash flow.”

The latter may lose some importance, however, if corn futures continue to climb and stay up for an extended period, Neeper noted.

“I think John Robinson's numbers comparing the cost and returns for corn vs. cotton indicate farmers might still be able to pay for a picker without growing cotton if corn prices continue to strengthen,” he said, referring to another Beltwide speech.

Shift potential

In his presentation on the U.S. Cotton Production Cost Outlook, Texas A&M University's John Robinson said farmers in the Delta and other areas with the most potential to shift acres would need relatively high cotton prices to avoid shifting away from cotton.

A Delta cotton producer with an 1,100-pound yield average, for example, would need 67 cents per pound from the market and loan deficiency payments to receive the same total revenue he could obtain from corn at $3.50 per bushel, says Robinson, Extension economist, cotton marketing, with Texas A&M.

Mississippi State University's Representative Delta Cotton Budget is showing income from cotton lint of 55 cents per pound for 2007. The budget shows a return of $32 per acre above total direct and fixed expenses for reduced-till cotton.

Neeper, in fact, is bullish on cotton prices, saying he expects December 2007 futures to reach 70 cents per pound. “I don't know if it's going to happen in April or September, but I do believe it will happen in the next 12 months,” he told a near standing-room-only audience at the Beltwide.

Exports will continue to be the driving force for U.S. producers. If the U.S. cotton crop comes in at 20.3 million bales, as Neeper expects, total U.S. supplies will still be in excess of 25 million bales.

“That means we're going to continue to have to export cotton to work supplies off the market,” he said. “I don't think we'll get rid of as much cotton as USDA is suggesting. As of last week, the export sales report was running about 4.1 million bales below that of a year ago.

“I'm not saying we can't get to a 16-million-bale export number for 2006-07, but, to do that, we would have to sell more cotton than we've ever sold between now and the end of the crop year.”

The outlook for the 2007-08 marketing year, which begins Aug. 1, looks more positive with exports increasing to 17 million bales and domestic mill consumption holding its own around 5 million bales. That would mark the fourth consecutive year of total U.S. offtake in excess of 20 million bales.

With the prospects for a smaller crop and increased exports, U.S. ending stocks could decline from 2006-07's 7.1 million to 5.8 million bales. More importantly, world ending stocks are also expected to fall, which means world exportable supplies will also be lower.

“With tightening supplies of cotton, prices should go a little higher,” says Neeper. “Prices will tend to respond a little slower than normal. I think we will be around the high 50s for the next couple of months until we get a better picture of how many acres are going from cotton to grains. Then prices will move higher.”