Big crops keep getting bigger. That’s an adage that’s been used in marketing circles for decades, but it’s rarely been talked about before a “single seed has been put in the ground,” as one observer put it recently.
Nevertheless, cotton market analysts, including those who appeared on the Ag Market Network broadcast from the Ag Update Session at the Mid-South Farm and Gin Show in Memphis, Tenn., are forecasting a larger and larger crop for 2019, possibly as much as 24 million bales.
The size of the 2019 crop — and its price — could well depend on the U.S.-China trade negotiations that are expected to end sometime in March, according to the Ag Market Network panel consisting of Joe Nicosia, Louis Dreyfus Commodities; Kip Butts, Informa Economics; Dr. O.A. Cleveland; Jarral Neeper, cotton market analyst, and Pat McClatchy, moderator of the panel.
“I hope the audience heard your comment — if I am repeating it correctly — that this crop potentially could be a huge crop,” said Cleveland, professor emeritus at Mississippi State University, referring to Nicosia’s presentation. “The odds slightly favor a crop pushing 24 million bales.”
What the market does with a crop that size could be determined, in part, by the outcome of the U.S.-China negotiations to end the ongoing tariff war and what a trade deal portends for U.S. exports of cotton to China.
Asked about the prospects for an agreement, Nicosia, who is senior head of the cotton and merchandising platforms at Louis Dreyfus, said he doesn’t have any inside information about the status of the negotiations, but that he believes an agreement will come “sooner rather than later.”
What about prices if an agreement is concluded? “Obviously, we’re going to have a big crop,” said Nicosia. “I think our other three experts would agree the potential is there for a substantial increase in U.S. production. Obviously, we have a long way to go. We thought we would have it last year, and we had a drought and two hurricanes.”
If the forecasts of a large crop come true, according to Nicosia, a trade deal will be imperative.
“China had better buy 5 million to 8 million bales out of the United States,” he said, “because we’re going to grow that much extra for them. In the world we live in today, we export somewhere between 12.5 million to 14.5 million bales outside of China. If we need to export 17 million to 19 million bales, China has to fill that void.”
He said he believes price is “totally dependent” on the trade deal being completed. “As I mentioned earlier in this speech, if there’s no deal, we go straight to the loan (CCC loan rate of about 50 cents). With a trade deal and substantial purchases in old crop, I think prices could explode quickly. New crop will be a function of whether we grow 24 million or 21 million bales.”
Cleveland drew laughter from the audience when he said: “I want to be optimistic (about the trade deal), and, in fact, I’ve been accused of being outlandishly optimistic, and, in the chair I’m sitting in today I’m the bear of the group.”
When it comes to the importance of agriculture vs. the importance of technology and other sectors of the U.S. economy, Cleveland said he “fears that agriculture takes the back seat, in his humble opinion. That is, as we look at agriculture with respect to the other items that I think are more important to the current administration.
“I’m just not that optimistic. I think the administration is going to dig its heels in extremely deeply in these negotiation with the Chinese, and that’s what has me bearish. I think we’re going to open one of those doors Joe was talking about, and we’re going to get a zonk, and everything goes down.”
While he doesn’t think the situation will become that dire, Cleveland said he hoped farmers heard Nicosia’s prediction in an earlier presentation that the 2019 crop could push 24 million bales. “That does have me greatly concerned.
INCREASED WORLD ACREAGE
“Joe talked about increased acreage around the world; we had over 90 cents last year; we could have sold this coming up crop for 84 cents; one or two did, 10,000 didn’t; so that’s where we’re left today,” he said. “As this market wants to come up, I think there’s going to be a lot of grower cotton becoming available. And the longer we wait through mid-March, the end of March, the end of April, growers will get nervous, begin selling on any uptick and begin to flood the market.”
If the trade deal is removed from the picture, it’s much easier to become bullish, he said. “The other thing that Joe was very clear about was the investment China is making in Brazil, and we’re going to have to be very innovative to maintain the share we have if not to lose share.”
Butts, senior cotton analyst with Memphis-based Informa Economics, said he agrees with predictions of increased cotton plantings in the U.S. this spring such as the National Cotton Council’s grower survey that put 2019 acreage at 14.5 million, up 2.9 percent from 2018.
“Our shop has a little larger crop,” he said. “We see the yields coming up. Farmers are doing such a much better job, and we’re seeing better varieties. The risk is to the upside for a much larger crop.”