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08 cotton better? Corn markets bullish; bears dominate cotton

Ethanol is continuing to fuel high corn prices, although offerings have dipped since early in the year. Cotton markets remain weak for the 2006/2007 crop, but reduced plantings and lower ending stocks could result in improvements for 2007/2008 production.

Jose Pena, Texas A&M Extension economist at Uvalde, says the corn market currently offers “excellent pricing opportunities for the 2007 through 2010 crops.”

Planting intentions up significantly over last year and good soil moisture conditions throughout much of the corn belt have pushed prices down as much as 50 cents per bushel since February, he says.

“Warm, dry weather in early May “provided a quick boost in corn planting progress. After a slow start, plantings have been on a very fast pace. Initially, corn planting progress lagged the five-year average by about 50 percent.”

By mid-May progress was closer to 5 percent behind last year and equal to the five-year average. Pena says the market weakened on plans to put 90.5 million acres in corn and conditions early that support a good start to the growing season.

“Corn use for ethanol continues to fuel the market.”

That 90.5 million-acre crop could produce 12.46 billion bushels, up 18.3 percent from 10.54 billion last year.

“This estimate is down about 75 million bushels from pre-report trade estimates,” Pena says. “USDA lowered its trend yield estimate to 150.3 bushels per acre, down from 152 bushels during the March Outlook Conference.”

The USDA raised the forecast for corn use for ethanol by close to 58 percent from last season. “For the first time, ethanol use is projected above exports, at 3.4 billion bushels, reflecting continued expansion in ethanol capacity and profitability for ethanol producers.”

Weather, as always, will be a key. May rainfall delayed planting progress, but still had a bearish effect on markets. “The rain will help growth progress of most of the crop (78 percent planted).”

He expects ending stocks for the 2007/2008 crop to remain “relatively flat,” even with higher use and lower carry-in stocks. Farmer prices-received projections range from $3.10 to $3.70 per bushel, compared to $3 to $3.20 per bushel for the 2006/2007-crop year.

Pena says the global coarse grain production estimate for 2007/2008 is at a record 1.057 billion metric tons, 8.4 percent higher than 2006/2007.

Cotton markets are not as promising, but not hopeless either. The 2007/2008 crop estimates indicate lower production, compared to 2006/2007, with higher exports and “significantly lower ending stocks. So, while the market for the old crop may remain flat, at or below loan rate, the market for the new crop may improve.”

New crop estimates put 2007/2008 production at 18.8 million bales, down 13.6 percent from last season. Planting reports are 20 percent below last season, but production will not likely lag that much, Pena says. Favorable soil moisture conditions at planting time in the Southwest give the area potential for a good start. Yield per harvested acre projections show 820 pounds.

The domestic market remains a sore spot, with domestic mill use projected at only 4.4 million bales. Exports are expected to rise nearly one-third to 17.5 million bales. Strong import demand and record supplies of U.S. cotton for export fuel the bullish export estimates.

“It's interesting that 93 percent of the estimated 2007/2008 production is export bound,” Pena says. “The U.S. market will be dominated by the world cotton situation. Ending stocks are projected at 6.4 million bales, off 32.6 percent from last season's 9.5 million bales.”

The global cotton production estimate for the 2007/2008 season is 116 million bales, a slight decrease from last season. World consumption rises nearly 4 percent to 127 million bales, “reflecting continued strong world economic growth and competitive cotton prices relative to polyester. The China balance sheet shows production stable and consumption rising 8 percent to 54 million bales,” Pena says.

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