What is in this article?:
- Cotton markets, Texas drought and overseas production questions
- Unprecedented drought
- Overseas production
- Cotton marketer, speaking at the SCGA summer meeting, talks about issues facing crop in markets.
- Questions USDA estimates of Texas production.
- Explains impact of drought conditions hitting Texas growers, cattlemen.
On overseas cotton production…
“The big question is: are there any other 2011 weather markets that affect crops? China is always a big question mark – are we getting a correct picture? Are their projections way off? Will there be a big surprise from the Chinese?
“We keep hearing the Chinese reserves are empty and they’re looking to fill them back up. If true, that should help put a floor in and stabilize the market.
“India is also a question mark. Part of the reason the market ran up so high last year was that India banned all cotton exports. At that time, we were already in a short cotton situation and the ban caused a panic in the market. Right now, India is saying they’ll export as usual.
“By September, we’ll have an indication how the cotton market has handled the calamity in the financial markets during the first part of August. Overall, I’ve been pleased with how cotton has held up. Considering the other markets, I think cotton has done okay.
“I don’t look for cotton prices to move up sometime in September, although not nearly as high as they were last year. I’m an optimist and think cotton will climb above $1 and hover around there. The conservative marketer in me says ‘farmers need to set a floor around $1, if they get the opportunity.’ Use a combination of the options market and contracts to set a floor and take advantage of any up-moves.”
On the SCGA talk…
“At the SCGA I spoke about the supply chain and who determines what each link pays.
“This time last year, the mills would pay very high prices for cotton. That’s because they could sell their yarn at a very profitable rate. Retailers need to restock shelves. So, as the prices went up last fall, the mills weren’t concerned.
“Now, the situation is very different. Some mills have large stockpiles of yarn spun from expensive cotton. That means if they sell it in today’s market, they’ll take a loss.
“Typically, when the market is down as it is now, mills draw back and say ‘we’ll wait and see. If this turns out to be the bottom, we’ll buy some. If not, we’ll wait.’
“The mills still need to buy cotton and demand should rise in the next few months. The big question is how much demand.”
How long can they watch?
“That’s a very good question.
“Last year, we saw them wait too late believing there would be a pull-back. They ended up buying at 50 cents to 70 cents higher than they wanted to.
“Usually waiting pays off for the mills. That’s true if you look at it historically.
“I’ve said all summer that I thought in September, you’d see some demand creep back into the cotton market. I’m anxious to see how much and in what manner it comes back in. Therewon’t be the panic buying that was so prominent last year.”
“I’m curious, at the end of the year, what Texas’ production (will be). Today, the USDA said the state production will be 4.5 million bales. A lot of experts think the crop will be significantly smaller.
“I really hesitate to ever argue with USDA numbers, but I was really surprised to see them put 4.5 million bales in Texas. (A figure between) 3.75 (million) to 4 (million) seems more likely to me.”