
U.S. Cotton farmers face challenges marketing the 2024 crop and forward pricing 2025 production.
Extension marketing specialists say staying alert to rallies and using available marketing tools as effectively as possible will be key in achieving best prices possible.
Aaron Smith, University of Tennessee Institute of Agriculture, Knoxville, and John Robinson, Texas A&M AgriLife, College Station, agreed that marketing challenges are substantial.
Editor’s note: This article first appeared in January print issues of Southeast, Delta and Southwest Farm Press.
Estimates suggest 11 to 12 million acres in 2025. If farmers plant that much, 11.5 million, even if conditions are dry with a 20% abandonment and 820-pound average yield, ending stocks could total five million bales.
Competition
Domesticate production is not the only worry, said Robison and Smith.
“Another challenge is Brazil, a major player for global cotton export share,” Smith said.
“Brazil is outcompeting U.S. cotton,” Robinson added, and has overtaken the U.S. as the third largest producer and top exporter. “This year, Brazil had a big crop and is selling competitively.”
He said the export and production categories could flip flop. “If the U.S. ever has a big crop to export, we can reassume that position. I’m not sure Brazil will stop expanding production, and if they continue to produce high yielding, rainfed cotton, they will continue to have a competitive advantage.”
Smith and Robinson agreed that competition from synthetic fibers creates marketing hurdles.
Opportunities exist
Smith saw “cautious optimism” that March to May cotton could move into the upper 70-cent to the low-80s range. But a 69-to-74-cent range is also possible.
Aggressive marketing might pay off, Smith said.
“With old crop cotton, two things might be effective, depending on how aggressive farmers want to be.” He said storage and options come with upside potential and downside risk.
“Buying an out-of-the-money put and selling an out-of- the-money call is a possibility,” he said. “Perhaps they buy a March or May put and sell a call at a higher strike price and pocket the premium difference. That’s an aggressive approach for premium paid vs premium received and will depend on the put and call strike prices.
“It will be a challenge to find good marketing strategies. Will a 74 cents deferred contract be available when it gets to sell date?”
Storage risk
Smith said holding physical cotton comes with significant challenges, too, including interest and storage costs incurred if the producer holds an operating loan note. “Even without an operating loan note, holding inventory still comes with costs,” he said.
“Pay attention to seasonal ICE cotton patterns,” Robinson said.
Peak typically occurs in mid-spring and the low from August to September, on average. “But in any year, we can have rallies or slides at any time. Over 20 years, on average, December futures hit their highs long before harvest,” he said.
Consequently, he recommended forward pricing some cotton and not holding all until harvest.
Smith and Robinson said production losses across the Cotton Belt offer slim hope for pushing prices up. Supply might be reduced, but they agree that USDA estimates likely already include Southeast hurricane damage and Southwest drought losses.
“Production estimates, including losses in Georgia, are already reflected in the WASDE report,” Robinson says. “Beyond October, we don’t expect major production adjustments, maybe 200,000 to 300,000 acres. That likely is already baked into producers’ marketing positions.”
“We see a lot of production variability across the Cotton Belt,” Smith said. “Producers are facing both a price and a yield hit. Tennessee yield is down 10% compared to last year; Arkansas is not as bad as Tennessee but is also off. Quality is down, too.”
He said cotton is one of the most challenging sectors in agriculture. Production losses from drought, hurricanes, and other weather factors are common.
“Cotton producers often face consecutive lean years,” he said. “They will hit a few homeruns but experience frequent strikeouts as well.”
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