What is in this article?:
- When corn and cotton prices start with 7, itâ€™s not good for cotton acres
- Fundamentals may improve
- New players in textiles
- According to Gary Adams, with the National Cotton Council, one factor holding up cotton prices today are recent Chinese purchases intended to increase reserve stocks.
- China began purchasing significant quantities of cotton in 2011, Adams noted, ostensibly to “stabilize their market and support the price to their farmers of approximately $1.40 per pound.
- They procured around 14 million bales of domestic cotton, which is roughly 35 percent of China’s annual mill use.”
John Gilliland, left, legal counsel for the National Cotton Council, visits with Gary Adams, vice president of economics and policy development for the NCC, during a summer joint meeting of the American Cotton Producers and the Cotton Foundation in Nashville, Tenn.
Fundamentals may improve
Fundamentals may improve in 2012-13. USDA is projecting a world crop of about 114 million bales and some recovery in mill use, from 105 million bales to 108 million bales, “but that is not enough to prevent an increase in world stocks.”
As for this year’s U.S. cotton crop, Adams sees a slightly smaller crop than what USDA is projecting, 17.7 million bales, to perhaps between 16 million and 16.5 million bales. “USDA may not have captured some of the abandonment that has occurred. Crop condition reports indicate problems with the crops in Texas, Oklahoma, Kansas and Missouri. I suspect the 14 percent abandonment estimated by USDA may move a few percentage points higher.”
Outside the United States, USDA is projecting 96.5 million bales of cotton production, down almost 11 million bales from 2011, with most of the reduction due to reduced area.
Another big factor is the yet to be planted cotton crop in the Southern Hemisphere, noted Adams. “USDA is projecting a 25 percent reduction in cotton plantings in Australia and Brazil. The reduction may be greater if prices on the futures market continue to hold as we get closer to planting. We could see the world cotton production number come down a little bit from USDA's numbers.”
On the demand side, USDA is projecting a 2.5 increase increase in global mill demand for 2013. “We are a bit more competitive with polyester, but a lot will depend on the overall economy,” Adams said.
A worsening economy no doubt has taken its toll on cotton demand. Between 1998 and 2006, the world added roughly 39 million bales of global mill use, Adams noted. Subsequently, between 2006 and in 2011, there was a decline of between 17 million and 18 million bales.