South Plains Cotton Update

South Plains Cotton Update on Ag Talk on Fox Talk 950 for Thursday, April 19th, 2007.
Jay Yates, Extension Risk Management Specialist at the
Texas A&M Agricultural Research and Extension Center.

The South Plains cotton crop prospects this week continue to look very positive on the production side of the equation. In reports from county agents this week, most are reporting good soil moisture and have indicated that all pre-irrigation was eliminated this year for substantial cost savings per acre. Which is good news for producers who were counting on a disaster bill to help ease their cash flow burdens. It would appear we are right back where we started from on disaster assistance. Irrigation savings will also help cover the increased cost of fertilizer. I called a good friend who manages one of our area farm supply companies to ask about fertilizer prices for a budget I was working on and his response was to ask if I was sitting down and had a nurse present. The current price structure favors anhydrous, so if you are set up to use it you might want to consider all alternatives before just ordering what you have in the past.

Freezing weather has pushed back any idea of getting this crop in earlier than normal. Wheat is still being evaluated for frost damage. Orchards and vineyards incurred the greatest losses. The only cotton in the ground in our area was Dr. Ganaway's cold tolerance test planted around the 3rd of April. He tells me that it has finally sprouted, but was still in hiding from the Tuesday's hailstorm.

This week the USDA Farm Service Agency in Texas is sending out a letter to all cotton producers who have direct marketing loans with the CCC to inform them of the potential costs of forfeiting cotton. The letter, forwarded to me by Plains Cotton Growers, is the simplest explanation I have seen on the subject and gives a complete example, using likely charges for Texas producers. Fortunately, there is not really that much cotton in producer held loans. Only 640,916 of Texas' 5.7 million bale crop remains in producer held loans. The coops however, have nearly 2.5 million bales in the loan as of April 10th of this year.

If you need help analyzing all the opportunities available this year with high grain prices and the best soil moisture in April ever, contact me for a comprehensive, risk-based analysis of your current operation compared to any alternative scenarios you might be considering using the FARM Assistance program.

Sales of all cotton last week at 827,500 running bales, a marketing-year high, were more than double the previous week. That brings year-to-date sales to 82% of projected exports compared to 86% this same time last year. Of that total, 795,800 running bales were upland and 31,700 were Pima. The primary upland buyers were China (489,600), Turkey (108,400), Pakistan (47,400), Indonesia (39,100), and Taiwan (23,400). Pima sales were mainly for China (13,900), Pakistan (10,000), Japan (2,800), and Taiwan (2,600). Sales of 6,500 for delivery in 2007/08 were for India. Total exports were 273,000, over 150,000 bales short of the 425,600 bales needed to meet the current USDA forecast of 13.5 million bales. To put that into perspective, there are only 18 times in the past 3 years that we have ever shipped that much cotton in 1 week. The primary destinations for upland were China (63,000), Turkey (43,800), Indonesia (22,100), Mexico (21,900), Thailand (14,700), Taiwan (13,800), and Peru (11,100). Pima exports of 26,700 were primarily to China (6,100), India (4,000), Pakistan (3,900), and Turkey (3,700). With shipments only 64% of what was needed this week, next week, as well as the rest of the year, the number will have to be over 435,000.

The market gave us tremendous insight into Chinese buying patterns this season. For the first time since the crop was harvested, the nearby contract traded below 52 cents for an entire week and China stepped in and bought nearly 3 times as much cotton as they had the previous week. The market responded this morning by opening only 20 ticks higher in most contracts. As the old saying goes, "The cure for low prices is low prices." If we have any hope of making the USDA estimate of exports, the nearby contract will have to spend a significant amount of time below 52 cents. The other reason for the price needing to be this low to get the Chinese to buy is the price of synthetics. I read a report this week that the mill delivered price for synthetic fiber in China was 63 cents. To maintain rural income the price of cotton in China is kept artificially high, so the major competitor to US cotton is synthetic fibers.

New crop December continued to trade in the range between 56 and 61 that has been in place since September of 2006. This market has not traded outside a 4.5 cent range for exactly 8 months now. This range fits perfectly with the forecasted increase in price this year over last due to tightening world stocks. Last year December traded in the range of 47 to 51 cents for the entire time it was the front month, therefore this market already has built in tighter world supplies. Major production problems somewhere in the Northern Hemisphere are the only thing at this point that would drive December cotton above this range. On the downside, a recession caused by rising food prices due to the increased competition for gains to make ethanol could cut demand and force prices back into the 40's. I would lose my ag economics license if I didn't give a good argument for both higher and lower prices, but currently my bias is for more of the same. What does that means for this year's cotton marketing plan? Continue to look for opportunities to sell positive equity and premiums for quality fiber.

For more information on cotton marketing be sure to check out Dr. John Robinson's weekly cotton marketing newsletter by clicking on the Cotton Marketing link from the Extension Ag Eco website agecoext.tamu.edu.

That's your South Plains cotton update for Thursday, April 19th. This is Jay Yates, Risk Management Specialist with Texas Cooperative Extension. Join me each Thursday at this same time right here on Ag Talk on Fox Talk 950.