What is in this article?:
- High cotton prices β will consumers push back?
- Growing world economies
- One key to cotton demand in 2011-12 is whether there is consumer pushback as higher commodity prices push through the marketplace.
- U.S. and world cotton plantings should expand next year in response to high prices, but competition from grain will probably limit the expansion to 15 percent and 7 percent in the United States and the world.
- World production is forecast to exceed world consumption for the first time in six years in 2011-12.
Growing world economies
Neeper sees continued growth in world economies, which should bump world cotton consumption up from 116 million bales to somewhere around 122 million bales. “We will add some stocks to world carryover, but as our textile industry was painfully reminded this year, we need the stocks around the world to keep cotton in front of the consumer.”
Those numbers, if realized, would also mean that for the first time in six years, world production will have exceeded consumption, leading to a slight increase in stocks from around 43 million bales to 45 million to 46 million bales.
Neeper says there’s no reason to believe that cotton prices “are going to collapse anytime soon unless we have another economic malaise, or if we have a big rally in the value of the U.S. dollar, which doesn’t seem likely any time soon.
“Are we going to see $1.50 next year on the nearby contract? Probably not, but with 12.8 million acres, and roughly 6.4 million of those acres being in the state of Texas, if there is a disaster there, and we have smaller crops than expected, we could see some pretty exciting times.”
Terry Barr, senior director, CoBank, says the market will be watching consumer behavior very closely in the coming months, looking for pushback from higher prices — which could cause some demand destruction.
“We have to be careful going forward regarding the impact of higher prices. We’re going to have some market testing for both food and fiber, to see how higher prices hold in the market. How much pushback are we going to get?”
According to Neeper, demand destruction could come in the form of substituting polyester fiber for cotton “to keep prices down for consumer goods.”
Barr said financial regulation, or reregulation, in the commodity markets, could also be a factor. “One of the keys for this price run up is that we have a lot of liquidity in the futures markets. As we begin to move forward with regulation, we could do some damage to liquidity as we try to increase transparency and put programs in place.”
Barr says producers should prepare “for a pretty wild ride in both the grains and cotton complex for the next year.
“The last time cotton got up this high, we had a big acreage response. This time around, I don’t think you’re going to get as big an acreage response, because it’s going to be held in the grains and food side as a matter of policy incentives in many countries.”