High domestic cotton prices in China are likely to result in an increase in planted area in 2006-07, but the country's textile mills are still going to import a lot of cotton this year, according to analysts speaking at the Ag Market Network's March 14 teleconference.
“With cotton prices as high as they are in China, I expect their producers to get every inch of land they can planted in cotton,” said Carl Anderson, Texas A&M Extension economist. “With 70-cent cotton in China with cost of production per pound of less than 40 cents, they've got a margin of profit to work with. I'm plugging in a full 10 percent increase in planting in China and a 30-million bale crop until I hear about some bad weather.”
O.A. Cleveland, professor emeritus, Mississippi State University, is optimistic about China's thirst for U.S. cotton. “China has been phenomenal. A year ago, USDA and the major merchants were talking of China consuming 40 million to 42 million bales. USDA has already upped it to 45 million bales. A number of people have told us all year long that it would be 46 million bales at a minimum.
“We could easily expect 48 million bales to 49 million bales in offtake from China in 2006-07. There's no question that China will increase its acreage. Their crop size may be up 4 million bales to 5 million bales. But they'll still have to come to the United States because their domestic consumption will be up 3 million bales to 5 million bales.
“We have the opportunity to get December to 65-68 cents, with a low probability of taking December below 54-55 cents. Certainly that could happen if we have the production we had in west Texas last year.”
At the time of this writing, dry weather was plaguing the Southeast, noted Anderson. “Drought in Texas, Oklahoma and Kansas continues even as south Texas cotton is now being planted. It could affect about 5 million acres in west Texas, where the situation is touch and go. They get started planting around the middle of May and plant to the middle of June. We are disappointed that we haven't gotten any widespread rain over that area.”
Last year, the Southwest region produced 8.6 million bales of cotton, an all-time record. “This year, we could lose 1.0 million to 1.5 million acres to abandonment in the dryland areas, at a loss of about 300 pounds per acre. The good news is that we have several hundred thousand acres under drip irrigation and 1.5 million acres to 2.0 million acres under irrigation. There are some problems with the cost of the water, but at least the cotton should have enough moisture to germinate. The bottom line is that the Southwest could have a good crop, but not like last year.”
Good crops in the Delta and Southeast and a possible planted acres increase of 600,000 acres in those two areas could partially offset any losses in Texas, Anderson said.
“Right now, we're looking at a 21-million bale U.S. crop. With a little help, we're right back at 22 million bales. So we have the potential for a crop to just about meet a 17-million bale export demand. With 5 million bales to 6 million bales used in the United States, we're looking at total use of 21 million bales to 22 million bales of use.”
Anderson noted that the market could move higher if both China and the United States have bad crops. Cotton producers need to keep up with news related to cotton price and take advantage, according to Anderson. “If you're interested in farming cotton for the next five years to 10 years and making cash flow, you need to know marketing strategies and how to use them, or know someone who is honest, understanding and will help you put on the correct strategy.
“I don't think anybody in the cotton market today can afford to miss the small rallies of 5 cents to 6 cents. If we make 117 million bales and use 120 million bales, we'll see world stocks dropping and prices up around 65 cents to 70 cents.
“At the same time, you have to watch out for a 10-cent drop under you. A cotton price of 48 cents is reachable if we reach a 120-million bale crop and use 117 million bales.”
“It behooves producers to stay on top of news events,” added Mike Stevens, Swiss Financial Services, Mandeville, La. “These big market swings are generally caused by the funds moving in and out, and give additional marketing opportunities for producers. They're not anything to be afraid of, but they are something to be respectful of.”