Uncertainty over the size of the cotton crop in drought-stressed Texas, where over half of the U.S. crop is planted this season, will likely continue well into October, and perhaps November, according to experts speaking at the Ag Market Network August teleconference.
Cotton in the Texas High Plains, the largest area of contiguous cotton in the world, has been described as a mixed bag – late, early, stressed or beautiful – with the worst cotton sometimes sitting right across the road from the best.
Meanwhile, for the first time in over a century, the south Texas drought has claimed the entire cotton production of Kleberg County. Quoting Texas AgriLife Extension sources, Mike Stevens, with Swiss Financial Services, noted, “Not a single pound was produced in the county this year, which include the gigantic King Ranch. Other Coastal Bend counties haven’t fared much better. For example, Nueces County producers planted 124,000 acres of cotton this season, 95 percent of which has failed. San Patricio County producers planted about 130,000 acres of cotton with a fail rate of more than 90 percent. The economic hit to Kleberg County alone is about $50 million.”
Most of the cotton grown in the Texas High Plains is in two regions, an irrigated area north and east of Lubbock and a huge dryland area south and west of Lubbock.
According to Jay Yates, a risk management specialist with Texas AgriLife Extension Service in Lubbock, “It’s amazing. On one side of the road might be one of the prettiest cotton crops you’ve ever seen, and on the other side of the road, cotton is thin, skippy and late. It really doesn’t have much to do with how good the farmers are. It’s been a matter of fortune as to the day it was planted and the weather that followed.”
Yates says his evaluation of the Texas crop closely follows USDA’s August 12 crop production report on acreage in the High Plains “They raised acreage in the irrigated area from 450,000 acres to 540,000 acres. My estimate is about 600,000 acres. They raised the dryland area from 2.71 million acres to 2.8 million acres, which is exactly what I’ve estimated.”
The Texas Agricultural Statistics Service suggests an abandonment of 730,000 acres in the High Plains, 70,000 acres in the irrigated area and 660,000 in the mostly dryland region. “I believe the abandonment in the irrigated area is about 90,000 acres and in the mostly dryland region, about 612,000 acres.”
Yates’ estimate of lower abandonment in the dryland region of the High Plains is due to “cotton planted in the second, third and fourth weeks of June. That’s going to be the wild card. That cotton looks really good, but it only started blooming the first part of August and a lot of it has already gone to cutout.”
The late cotton could produce a lot of pounds “if we have one of those never-ending falls. But an early frost could make a huge swing in the final yields for the High Plains.”
Yates also projects a much lower average yield than TASS. “A lot of the High Plains dryland cotton is extremely skippy on top of being late. Half of our irrigated growers are saying this is the best crop they’ve ever had, but the other half say it’s the worst crop they’ve ever had.”
TASS is estimating a Texas crop of 4.165 million bales for the High Plains, which would be the fourth largest crop in history. Yates puts the High Plains crop at 3.9 million bales, which would still be the fifth highest. Yates estimates a total Texas crop at slightly over 5 million bales, compared to 5.4 million estimated by TASS.
Carl Anderson, professor and Extension specialist emeritus, Texas A&M University, added that the possibility of a late-planted, dryland crop receiving both ample moisture and a late fall is possible. “The uncertainty there is as great as we’ve ever seen it – for a late crop to make an above average crop.”
Meanwhile, the cotton market continues to be under the spell of “a herd of speculators” rather than dependent on apparent fundamentals, according to market analysts. For the speculators “buying the first dip is the pattern that’s been working for them,” said Stevens. “The prime motivating factor concerning the market on any given day has been a real guessing game.”
The cotton market is trapped in a sideways trading pattern with 65 cents offering stiff resistance on the top and buyers ready to step in at below 60 cents. “The mills have not changed their hand to mouth buying that has served them so well,” Stevens said. “Futures have outpaced the A-Index by a considerable amount.”
Technically, Stevens says the inability to close above 65 cents “makes the market suspect. When the market starts to slip, and it will, there should be retracement support between 61.90 cents and 61.50 cents with major trend line support just above 60 cents. Below 60 cents, there should be a mountain of sell stops. In the meantime, regardless of bearish supply and demand fundamentals, speculative money managers have their eyes on historical levels in the low 70s and are willing to commit more money to cotton on pullbacks between 60 cents and 62 cents.”
Anderson says he wouldn’t be surprised if speculators drove futures “to 70 cents and above. At the same time, fundamentally, the supply of cotton is fairly adequate in the world. That tells me this market has more of an opportunity to go down than up.”
Stevens noted that the Indian cotton crop “is getting kind of ‘iffy’ again. “From what I’ve heard, cotton is all stages of development from setting bolls to still planting. It’s too early to get too excited, but if things don’t improve pretty soon, traders will start whittling down their estimates of the Indian crop, which could have global consequences.”
Stevens also noted that China announced that another large supply of cotton will be sold from its reserve, “although I’m not sure it’s going to make much difference in the futures markets they way they’ve been acting. But it could cut into our exports again.”