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Plant cotton for the total returns, not cotton futures

Plant cotton for the total returns, not cotton futures
“I’ve been telling producers who are growing cotton in 2015 to be patient,” said Don Shurley, Extension cotton marketing specialist for the University of Georgia. “Cotton futures are not going to 70 cents right away because that would send the wrong signal. The market is telling us to plant less cotton not more.”

Farmers who are still weighing a decision on whether to grow cotton in 2015 should plant not for the market but for what their total receipts on the crop might be, cotton marketing analysts are saying.

“I’ve been telling producers who are growing cotton in 2015 to be patient,” said Don Shurley, Extension cotton marketing specialist for the University of Georgia. “Cotton futures are not going to 70 cents right away because that would send the wrong signal. The market is telling us to plant less cotton not more.”

For some growers, however, the decision on whether to include cotton in their crop mix may depend more on their total returns on cotton and not what May or December ICE cotton futures are offering, according to Dr. Shurley.

“The December 2015 futures price closed at just under 64 cents last night,” he said, speaking during the twice-weekly 2014 Farm Bill Webinar sponsored by the University of Arkansas Extension Service. “We’re not going to plant much cotton for this price, but this is not what you’re planting for.”

2015 Mid-South Farm & Gin Show

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Dr. Shurley is not the only market observer who has been cautioning growers to not abandon cotton in 2015 due to prices. Joe Nicosia, executive vice president, Louis Dreyfus Commodities LLC, recently told growers they could receive up to 70 cents a pound for their cotton when they include all their receipts.


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During the webinar, which University of Arkansas agricultural economists and USDA Farm Service Agency program specialists have been conducting to educate farmers on the new farm law, Dr. Shurley provided an example of what growers could receive for their 2015 cotton.

LDP, premium, positive basis

“If you take the opening May 15 futures price for today (March 12), 60.80 cents, and add our current Southeast basis of .25 cent, the 3.25-cent premium some growers have been receiving in the Southeast and the 2.83-cent loan deficiency payment USDA announced for this week, you get a total of 67.13 cents,” said Dr. Shurley.

“That’s at a time when cotton futures have dropped to just over 60 cents from the 66 cents where they were just two weeks ago.” The LDP or marketing loan gain has risen from 2 cents in early October of 2014 to as high as 7.01 cents a month ago.

Some of the decline in futures occurred after USDA released its March 10 World Agricultural Supply and Demand Estimates. The report said world cotton production would be down, world cotton consumption down and world ending stocks up 220,000 bales. It also lowered China’s production forecast by 500,000 bales.

“I don’t know what the market was looking for on Tuesday (March 10), but they didn’t find it,” said Shurley. “The nearby May contract was down 138 points and December down 117 points on Tuesday. And it fell again on Wednesday.

Dr. Shurley suggested growers give some thought to how they use the marketing loan to help their returns. USDA announces the loan deficiency payment amount, which is based on the Adjusted World Price, on Fridays. The payment amount is good through the following Thursday.

“Keep an eye on the market. If prices are increasing during the week, POP your cotton (request an LDP or Producer Option Payment) and sell by Thursday,” Dr. Shurley noted. “If prices are rising, the LDP will be adjusted downward the following week. If prices are declining during the week, then wait because the LDP will be higher the following week.

Strategy for now, later

“Growers can use this strategy for their 2015 crop or if they still have 2014 cotton to sell, they could use it now. If you’re careful, you can pick up an extra 2 cents to 3 cents per pound easy by timing your LDP.”

For Dr. Shurley, the worst case scenario for 2015 is “if 2015 ends up like 2014.”

The National Cotton Council’s Planting Intentions Survey, which he expects will be similar to USDA’s March 31 forecast, said growers will plant less than 10 million acres in 2015. Even so, it’s possible they could harvest a crop of 13.5 million bales if abandonment reaches 16 percent.

“If our domestic use is 3.65 million bales and exports 10 million bales, ending stocks could be 3.91 million bales,” he said. “That’s not that different from the 4.2 million bales USDA is forecasting for 2014-15.”

The result would be prices remaining in the current trading range between 60 and 70 cents per pound, and growers needing to rely on LDPs and premiums to boost revenue from cotton until the markets do begin to rebound, possibly in 2016 or 2017.

Most experts are predicting U.S. and world production will likely be down in 2015, depending on how China’s new target price system plays out in China. If production falls and consumption begins to increase due to a revival of demand for cotton products, growers could begin to see a narrowing of the gap between the two for the first time in five years.

80-cent cotton? No.

“If the gap continues to become narrower, does that mean cotton will go to 80 cents? No,” says Shurley. “What it does mean is that we’re closer to a bottom on the cotton market.”

“Don’t dismiss growing cotton just because you think it doesn’t work,” said Nicosia, speaking at the Mid-South Farm and Gin Show in Memphis, Tenn. “Really put a pencil to all your income, to what it is.”

In some cases, that will be the equities merchants offer for cotton to buy it out of the Commodity Credit Corp. loan program, he noted. It could also include rebates from cotton ginning and warehouse operations.

“Focus your marketing attention on maximizing your equity potential,” he said. “You’re doing a great job growing it, a great job of increasing the quality. The marketplace is recognizing the quality, the longer staple, higher grades. Focus on your equity. That’s where you will get your rate of return while we work through these stocks.”

For more information on the University of Arkansas Farm Bill Webinars, visit

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