No one is ready to creep out on that thin, slick, shaky limb and predict dollar cotton by fall harvest.

But…

If things go awry with planting or production or harvest, and given the thin buffer of stocks on hand, it could happen. “If we see a monsoon somewhere, we could see dollar cotton,” said Anthony Tancredi, President, Allenberg Cotton Company, Memphis, Tenn.

Tancredi, speaking on the weekly Ag Market Network conference call last week and later as a featured speaker for the Plains Cotton Growers, Inc., 53rd annual meeting in Lubbock, said downside potential far lower than 75 cents a pound is slight.

He said current price, at around 75 cents, is necessary to attract acreage to cotton. “The market needs acres to add to the buffer.” That price should be adequate to encourage U.S. farmers to add 1.25 million acres of cotton in 2010. It’s also “not too high until planting area is known.”

Tancredi also contends that production season could see price volatility as international production adds acreage. “But there is no place for recourse if we lose a bale,” he said.

He cautioned farmers to watch and see if the pipeline fills and if buyers can find enough cotton.

“I can’t see a situation that makes it look like we’ll get too much cotton,” he said.

Mike Stevens, Swiss Financial Services, said fundamentals, not just speculation, are helping drive demand. “Retail sales numbers are beating estimates,” he said. “Consumers are starting to spend again.”

He said numbers indicate that disappearance is more than inventory replacement. He said for months cotton price movements had been sideways “until they picked up in the second quarter and settled out at 83 cents.”

Prices have fallen back since but Stevens says at 76 cents cotton still looks attractive to growers.

“The demand is out there and I think it will build some legs under it following that washout (from 83 cents). But cotton will move too far; it always does.”

Much of that demand for 2010 will be met by Texas growers, said Roger Haldenby, PCG Vice President for Operations. “Texas will produce 50 percent of the U.S. cotton crop this year,” he said. “We may produce more than 50 percent, because most of Texas received ample moisture this winter.”

The High Plains counties typically plant about 3.5 million acres of cotton. “Growers are not always dependent on just market forces to decide on cotton,” Haldenby said. “On some acres, cotton is always the best option.”

He said High Plains farmers are hopeful about 2010. “They are as optimistic as they’ve been in a long time. From mid-April through May we expect farmers to plant their full complement of cotton because of the moisture available.”

He said the South Texas crop “is well on the way. The crop is up and is developing very well.”

Marketing the 2010 crop could offer challenges. “If the price is sufficient to encourage expanded acreage, it’s also good enough for farmers to get protection on the downside,” Stevens said. “The next 60 days could be critical.”

He and Tancredi agreed that final acreage numbers could move prices down for December. “We can make a case for movement either way.”

Tancredi said the most bearish case could see a 10 cent drop. “I don’t see it today, but it has happened before. When cotton hits 80 cents it will bring acreage in everywhere. For now, I would sell part of the crop, not all, because we know we are challenged on U.S. and global stocks.”

He said if perfect growing conditions and the expected (or higher) acreage increase occur, prices could drop. “I don’t think that will happen,” he said, “but pay attention to what goes wrong. Also, look for a put to protect against downside potential.”

He said farmers have had opportunities to sell 75 cent cotton one day only to wake up the next morning and find it’s dropped to 60 cents. “There is only one top and it’s hard to pick. Pick a price in the upper region and if you can make money and cash flow, take it.”

China, as usual, the marketing observers said, is the bug in the bale. “China has a 1 million-ton import potential hanging over the market. If they buy, they’ll have to come to the United States for part of it. But we see no indication yet that China is going to do that.”

Tancredi said for the market to collapse below 70 cents it would have to see acreage numbers “way out off projections and a lot more than expected. And if China comes in, we don’t have enough cotton. And every time we make an export sale, we push the supply down.”

Stevens said too many speculators are still in the mix. “But we are yet to price ourselves out of the market.”

Tancredi said the possible market negatives include a much bigger planted acreage than expected or if the general economic recovery “is not as good as we thought.”

Neither he nor Stevens believes a higher dollar value will pose serious downside risk. “A higher dollar may influence traders day-to-day,” Stevens said, “but longer term it’s hard to determine.”

“If the dollar soars it will affect the market but overall not enough to affect demand,” Tancredi said.

email: [email protected]