Return to TFB Main Page
Return to Texas Agriculture Archive

March 2, 2001

Slight rebound in cotton
prices expected in May

By Tim W. McAlavy
Extension Communications Specialist

West Texas cotton producers could see their market price rebound slightly by planting time this year, said a Texas A&M University economist.

"I wish I could tell you we will see 80- or 90-cent cotton ahead, but a combination of factors will likely keep the 2001 market rather lackluster. But that doesn't mean there won't be any profit in this year's market," said Carl Anderson, Extension cotton economist. "Based on the latest USDA crop report, there will probably be enough cotton in 2001 to hold December futures between 62 and 72 cents per pound until the end of the year.

"Even so, I am bearish on short-run prices and rather bullish on long-term prices. You could see prices recover to near 69 cents per pound by May...," he said.

Anderson made these projections while addressing more than 120 South Plains cotton producers at the recent Llano Estacado West Cotton Conference. The conference is one of several January and February regional production meetings held by South Plains county Extension agents each year.

Imports and exports, consumption, uncertainty about China's cotton marketing position, and higher U.S. planting intentions will play a role in setting 2001 cotton prices, Anderson said.

"China, for example, just recently and rather unexpectedly, `found' another 2 million bales of cotton. That effectively boosts their 2001 expected production to 20 million bales," Anderson noted. "At the same time, USDA expects 2001 world cotton consumption to rise by 340,000 bales, while world stocks decline by about 3.77 million bales. If this higher consumption, lower stocks scenario pans out, we could see prices move upward."

If the U.S. economy slows and European and Asian economies remain stable, world cotton demand should remain stable this year, the economist said. But even though USDA's latest numbers imply that world production is not keeping up with global cotton consumption, global carryover stocks need to decline even further to sustain a rally in cotton prices, Anderson added.

"USDA also expects U.S. producers will increase their cotton acreage this year, due to low prices for other crops, favorable crop insurance, and higher export sales potential," he said. "If we plant a 15.8 million acre crop, we could produce about 9 million bales of cotton in 2001—about 1 million more bales than the market really needs.

"Even so, I think we will see an A index between 65 and 75 cents per pound for the next 12 months," he continued. "And that gives you (producers) some pricing and profit opportunities."

The A index is the lowest average world price in five of the world's 12 major cotton producing nations.

Anderson said producers should strongly consider pricing the bulk of their crop between April and June of this year. He also recommended they watch the market closely, and employ pool pricing to increase their market leverage.

"Try to have your crop priced by July, at the latest. Buying puts as price insurance, and selling out-of-the-money calls is a good way to lock in a floor price while leaving the ceiling open if a shifting market pushes prices even higher," he said. "Joining a marketing club or gin pool can add price leverage to your marketing strategy."

"Forward contracts are another option. But remember that discounts can erode the security of locking in a price with forward contracts," he added.

He also said producers must reduce cotton production costs, diversify through crop rotation, use prescription ginning to meet end-user (cotton buyer) demands, and develop flexible, integrated marketing plans in order to ride out price slides in the market.

"For a lot of you, that means changing the way you do business," Anderson said. "At the same time, you should be thinking about policy—because Washington may soon initiate some changes in our farm bill.

"You can influence that process as a group. You can help bolster our economy and long-term ag profitability by supporting changes that enhance international market competition, strengthen our income safety net, control federal budget costs, reduce world commodity stocks, and help protect our natural resources."