The 2020-2021 U.S. cotton marketing year points to higher production and beginning and ending stocks along with a decline in consumption, according to the Aug. 12 World Agricultural Supply and Demand Estimates (WASDE) report.
Production is projected near record highs for corn and soybeans and resulted in lower projected farm prices. However, the futures market for corn and soybeans saw a rally upon release of the report based on skepticism around production levels. In long-grain rice, the average farm price is $11.60, and production is up this year.
"Production is estimated at 18.08 million bales, which is a 3% increase from the July estimate," said Will Maples, Assistant Extension Professor for the Department of Agricultural Economics at Mississippi State University. "Production increased due to the yield estimate being adjusted up to a record high 938 pounds/acre compared to 820 pounds/acre in July. The upward adjustment of expected yield is due to the reduction of expected harvested acres in the U.S. Southwest. Abandonment is estimated at 24%."
Looking at July, cotton use was lowered by 100,000 from July's estimate to 2.7 million bales. Exports in the U.S. stayed at 15 million bales, and export estimates are lower than the previous year, yet they remain the third highest on record. Ending stocks estimate at 7.6 million bales while the estimated stocks-to-use ratio is 43%. Both ending stocks and the stock-to-use ratio are the highest since 2007.
"The expected national average farm price remained at 59 cents per pound," he said. "Mississippi cotton expected harvest acres are estimated at 515,000, with a yield of 1,240 pounds per acre and total production of 1.33 million bales. Production in Mississippi would be down almost 18% from last year.
"Globally, estimates of cotton production increased to 117.53 million bales. This is due to increased production in India, Australia, and the U.S. Total consumption and trade were adjusted lower. The combination of increased production and lower consumption leads to ending stocks to be estimated at 104.91 million bales."
On Aug. 11, 2020, the December futures closed at 63.49 cents per pound. Due to supply and demand fundamentals as well as the ongoing COVID-19 pandemic, the cotton market will likely continue to have downward price pressure.
"Cotton and cotton products are discretionary items for many consumers," Maples said. "This causes cotton and cotton products to be adversely affected by an economic downturn. Consumer spending on apparel has strengthened since the shutdowns earlier this year but remains lower than the previous year. Before we can see an opportunity for cotton prices to rise, a return to normalcy in the global supply chain is needed along with the ability of the supply chain to work through the high amount of stocks currently on the market."
The level of corn production this year shows an almost record high projection on production.
"We're looking at almost a little over 15 billion bushels of corn production this year," Maples said. "This is a substantial amount of corn that's projected to be produced. With acreage up this year, this has depressed the market a lot through the first part of the year. This past week, we've seen a bit of a rally in the corn market, due to the derecho weather event in Iowa and through the Midwest, which estimates millions of acres of corn blown down from the storm.
"The August WASDE projections did not account for the derecho storm, so the market rallied based on the expectation of lower production. It will be interesting to see the impact on corn production from the derecho in next month’s report."
December corn reached $3.40, which provided a decent marketing opportunity for corn producers. The average farm price nationally is estimated at $3.10 for this year.
"In Mississippi, we should be a little over $3.10," he said. "We're going to have a lot of production this year, and stocks are going to be high, which is keeping prices down. It'll be interesting in the next months to see what the production and yield numbers are from harvest."
Soybeans were also affected by the weather event that blew through the Midwest.
"Even though the August WASDE report is projecting record soybean production and yield, we've seen a price rally on the soybean market over this past week due to skepticism around production levels and strong Chinese demand," Maples said. "It's trading today at around $9.13, which is up 30 cents from the release of the WASDE report. Recent new crop export sales in soybeans to China has provided the market with optimism of strong exports and is providing price support. This price rally has presented a nice marketing opportunity for soybeans assuming production levels stay near the USDA projections."
Exports sales are looking good in soybeans, and production is also up this year. The national average farm price is around $8.35.
Rice production is higher this year.
"Nationally, rice acreage in 2020 is currently estimated at 2.92 million acres," Maples said. "This is a 15% increase over 2019. Production is projected at 218.1 million hundredweight, up from 184.7 million hundredweight last year. While domestic rice consumption is projected to remain strong in the 2020/21 marketing year and exports projected higher, the increase in production is limiting any upward price movement as we will see an increase of rice stocks. The national average farm price for long-grain rice is projected down this year at $11.60 cwt from $12 last year. For 2020, we can expect to see higher rice production, higher stocks, and stagnant prices."