Anthony Tancredi, President of Allenberg Cotton Company in Memphis, paid homage to the return of the king during his address to the Plains Cotton Growers, Inc., 53rd annual meeting last week in Lubbock.
A year ago commodities were king but this year it’s cotton on the throne for “the first time in years. The ability to adapt keeps cotton alive,” Tancredi said.
He said the emphasis on renewable fuels several years ago pushed U.S. cotton production to a near 100-year low. “The global recession smashed cotton usage.” Bad harvest weather in 2009 added to cotton’s woes.
As the economic recovery begins, however, cotton is coming back. “But the economy still has dangerous curves ahead. It’s no longer just the cotton fundamentals that control the market.”
He said the housing market is recovering but has not reached the point where it bottomed out in recent recessions. “Unemployment numbers are less negative but are still negative. We have to get them back to positive.”
But the cotton market is picking up. He said U.S. cotton exports have “exceeded estimates. Personal consumption, clothing and footwear, are coming back but have a long way to go for recovery. We’ve turned around but we have to get numbers back to where they would have been and we will not know that until after it happens.”
He said despite the non-fundamental influences on the cotton market, the fundamentals look good for cotton. He said this planting season cotton competes strongly with corn as the best option for acreage. “In Texas, corn is best where it can be planted. Cotton is the next best.”
And many acres where cotton is typically grown are not conducive to corn production.
Fundamentals also note that world cotton stocks are falling and the surplus “is being used up by the textile industry. China’s reserves are being sold to their mills.”
From 2006 through 2009, the world reduced cotton planting by some 11 million acres. “About half that was from the United States,” Tancredi said. “India kept on planting.”
Planting estimates show Texas farmers will plant “just less than 6 million acres in 2010, but it’s not planted yet.” U.S. planting estimates puts total acreage at 10.5 million.
If those fundamentals hold, Tancredi sees only one way prices can move. “They can’t go down.”
But he does expect volatility through July. “The market has to play defense,” he said. “If a short crop comes in, dollar cotton is possible. But until we know stocks are really building, 70 cents is about as low as it can go.”
He said production levels will be a key for new crop cotton. With an average yield and a 2.8 carryout, he anticipates prices in the upper 70 cents range. With a high yield and 4.8 carryout, a 55 cents to 65 cents range is possible.
“If yield is low and carryout is 0.8, all bets are off and we could see a new high,” he said.
“At 80 cents, a lot of people want to plant cotton. But has the bull market peaked? Not yet. The margin for error in the stock situation is very narrow. We need fundamentals to change to back off the bullish bias.”
He said for the first time in a long time, “fundamentals will matter. This is the best opportunity to plant cotton in years.”
Even though rumors of dollar cotton exist, experts caution farmers not to wait on it.