South Plains Cotton Update

South Plains Cotton Update on Ag Talk on Fox Talk 950 for Thursday July 5th, 2007.
Jay Yates, Extension Risk Management Specialist at the Lubbock Agricultural Research and Extension Center.

Another big move in the New York futures highlights this week's update. USDA released the planted acreage report last Friday and everyone was expecting reduced cotton plantings. An earlier report by Informa had cotton acreage at what was then considered to be a bullish 11.5 million. When USDA reported their estimate of 11.058 million Friday morning the market responded with a near limit-up move to set a new life-of-contract high 6440 on the December contract.

The new contract high comes only 33 trading session after the new life-of-contract low set on May 14th. If you remember the Ag Market Network conference call on May 15th, Carl Anderson suggested it would be a good time to buy 56 cent December call options for what would have been 160 points or less. Tuesday those same options were worth 810 points, yielding a net profit of 6 and a half cents per pound minus commissions and fees. This is the last time I am going to say that Dr. Anderson was right on this one. He'll get the big head if we tell him he was right too often.

So far there has been nothing to indicate an end to this uptrend that started on May 21st with the crossover of the 9 and 18-day moving averages. However, two gaps have been left unfilled on the way up. On June 14th a 60 point gap was left at the 58 cent level and on June 29th a 75 point gap was left at the 62 cent level. I don't know if this market has enough strength to maintain these levels with all the cotton that will be available once harvest gets underway. With that said, I think it would be a good time to look at putting some kind of floor under at least half of expected production. I have visited with some merchants who are willing to offer a grower a chance to lock in a floor and still maintain upside potential for those who aren't comfortable using futures directly. Currently a 61 cent put for 2 cents offers a 59 cent floor. With a 6 cent basis that would be 1 cent better than the loan and still leave the upside open.

Due to the Independence Day Holiday yesterday, the weekly export report won't be out until tomorrow morning. The last report had us right on track to make the USDA estimated 13 million bales of exports. Look for a number of about 374,000 running bales this week to maintain the pace.

The FARM Assistance strategic analysis program can help you make long-term decisions like whether or not to buy or lease the adjoining farm. And if you buy it, what repayment terms can you afford? Decisions like these are what the FARM Assistance system was designed for. Call me at 806-746-6101 to make an appointment.

The West Texas Mesonet had reported no rain this past week until last night's storm, which dropped about half an inch from Amherst to Olton and Tulia. Temperatures have been average for this time of year. Matter of fact, for what may have been the first time in my life, the high and low were both exactly the average the other day. Heat unit accumulation, which started out slow, has been about normal on a daily basis. However, we are still behind the long-term average for the season.

Crop conditions, as rated by area county extension agents, improved some this week. Fields rated good and excellent rose by 6% to 39%. Fields rate poor and very poor declined 5% to 20%. Part of the decline in very poor is due to growers replanting stands of cotton released by insurance adjusters. The big storm with the 98 mph winds took its toll last Tuesday in the area southwest of Lubbock. Traveling the area this week I saw upside down pivots and about half of the northwest Lynn county cotton destroyed.

The Plains Cotton Advisory group meets tomorrow morning for its regular bi-weekly meeting to discuss the condition of the High Plains cotton crop. As usual, at the first meeting after the planted acreage report it is customary for those willing to go out on a limb to give their estimate of the crop size for TASS District 1-N and 1-S. Last year I predicted a 3.1 million bale crop and was ridiculed as being way too high for the drought we were in. The crop wound up at 4.1 million. This year my estimate is 3.5 million bales. Anybody out there interested in starting a pool?

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. Also, to listen to archived recordings of the Ag Market Network conference calls, as well as weekly commentary from Mike Stevens, go to the AgMarketNetwork.net website. The next live broadcast will be from the New York Board of Trade on July 13th at 7:30 a.m. This month's conference will feature special guest speaker Joe Nicosia of Allenberg Cotton, with roundtable participants O.A. Cleveland, Carl Anderson, Jarral Neeper, Mike Stevens and Pat McClatchy.

That's your South Plains cotton update for Thursday, July 5th. 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.

Jay Yates, Extension Risk Management Specialist at the Lubbock Agricultural Research and Extension Center.

The World Ag Supply/Demand Estimate, or WASDE report, came out this morning with the projected US crop size slightly bigger than anticipated at 17.5 million bales. The old crop estimates for the US crop remained unchanged, with a projected carryover of 9.8 million bales. Ending stocks for the new crop are forecasted to drop to 5.9 million bales by the end of next July. The estimate of world ending stocks continues to decline slightly, and let's face it, with only 4 to 5 million bales of domestic use, world stocks are all that really matters. The world stocks-to-use ratio is projected to decline from 46.9% this year to 39.9% next year.

New York futures continue their upward march. Another new life-of-contract high was set yesterday at 6750. The closing price for the week ended 344 points higher at 6692. Another 50-point gap was left between 6490 and 6540. That makes 3 significant chart gaps left on this steep upward trend. Have you ever played Jenga? Well, you know what happens when you have a tall precarious structure with a lot of gaps. It comes down much faster that it went up. With that in mind, if you remember last week I mentioned those 56-cent calls you could have bought for 160 points on May 15th. Yesterday they traded for 1110. That's a 9 and a half-cent profit. If you actually acted on the advice back in May, and have not already done so, get out! Don't be greedy, just take the profits and pat yourself on the back. By the way, that comes from Carl as well. On new crop sales, I don't think you could go wrong setting a floor under this price on at least half the crop right now, either with put options or a minimum price contract with a merchant.

Net Upland sales of 51,800 running bales were primarily for Turkey (21,100), China (15,000), Thailand (13,600), and Taiwan (6,100). Net sales of 72,700 for delivery in 2007/08, which begins August 1, were primarily to Thailand (26,000), Turkey (17,200), South Korea (10,900), and China (10,800). Exports of 389,100 went to China (148,700), Turkey (67,100), Pakistan (33,100), Mexico (28,300), Hong Kong (21,000), and Indonesia (20,100). Net American Pima sales of 5,900 were mainly for Japan (3,200) and China (1,600). Net sales of 4,600 for delivery in 2007/08 were for Portugal (1,300), Japan (1,300), Peru (1,200), and Pakistan (900). Exports of 7,900 were primarily to Pakistan (2,600), China (1,500), and India (1,200). Total exports of 397,000 were well above the 350,000 bales needed this week to reach the current USDA estimated 13.0 million 480-pound bales. The current pace of exports, if it holds, could push the year-end total back to 13.2 million bales. I heard this week that trucking rates to haul cotton have doubled in recent weeks; so maybe the push is on to have a strong finish and a good start to next year. We already have current year sales of about 2 million bales that will be carried into next marketing year. And this year there is no Step 2 about to run out, so there is no extra incentive to get it all offshore before August 1 like there was last year.

The FARM Assistance strategic analysis program can help you make long-term decisions like whether or not to buy or lease the adjoining farm. And if you buy it, what repayment terms can you afford? Decisions like these are what the FARM Assistance system was designed for. Call me at 806-746-6101 to make an appointment.

Growing conditions continue to remain nearly ideal for cotton this year. Rainfall since May 1st has ranged from 5 to 10 inches across most of the growing region according to the West Texas Mesonet. Annual totals range mostly from 15 to 20 inches, with the majority of locations already receiving their total average annual rainfall by the end of June. From the standpoint of total rainfall, this year is shaping up to match 2004, in which most locations ranged from 35 to 40 inches of rain for the year. The big difference is in timing, with most of 2004's rain coming after June 1st and a significant portion during October and November during harvest. Temperatures have been excellent as well with the highs ranging from 89 to 95 and the lows in the mid to uppers 60's. You can tell how good conditions have been by driving around the same area once a week and noticing the difference in crop stage. One person a the bi-weekly Plains Cotton Advisory meeting last Friday said they couldn't believe the change in appearance of the cotton in Yoakum County during a 4-day trip to Ruidoso.

Crop conditions, as rated by area county extension agents, improved again this week. Fields rated good and excellent rose another 5% to 44%. Fields rate poor and very poor declined 2% to 18%. We continue to have a small amount of extremely poor condition cotton being replanted to milo, but not enough to make a significant difference in final harvested acreage. There have not been a lot large hail events either. Last night a storm hung over the McAdoo area for quite some time with radar indications of nickel-sized hail. I haven't heard what the extent of any crop losses might have been as of this broadcast.

Dr. Boman was absent from last Friday's Plains Cotton Advisory group meeting, so there was no "around the room" guess of High Plains crop estimate. However, I spoke with him later and he was in agreement with my 3.5 million bale estimate. I came up with that number based on average abandonment, so if we continue to have weather like we have had so far, the crop will likely just get bigger.

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. Also, to listen to archived recordings of the Ag Market Network conference calls, as well as weekly commentary from Mike Stevens, go to the AgMarketNetwork.net website. The next live broadcast will be from the New York Board of Trade on July 13th at 7:30 a.m. This month's conference will feature special guest speaker Joe Nicosia of Allenberg Cotton, with roundtable participants O.A. Cleveland, Carl Anderson, Jarral Neeper, Mike Stevens and Pat McClatchy. Come to the Posey Gin office at 7:30 to listen to the conference call, drink a cup of coffee and discuss what the experts had to say with the Lubbock County Marketing Club.

That's your South Plains cotton update for Thursday, July 12th. 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.

Jay Yates, Extension Risk Management Specialist at the Lubbock Agricultural Research and Extension Center.

Last Friday the New York Board of Trade hosted the annual Cotton Market Roundtable with Carl Anderson, O.A. Cleveland, Mike Stevens, Jarral Neeper, Pat McClatchy and Joe Nicosia. If you missed it you can download it at agmarketnetwork.net. It says "NOT YET AVAILABLE" but it really is, if you just click on the link. Also, in his weekly column, O.A. Cleveland had a very good summary of the forum. It is available at cottonexperts.com. Carl sent me the complete version of his presentation, as well as the math that led him to make the statement that he predicted that Texas would make more total cotton this year than last off of fewer planted acres. If anyone is interested I can forward that information to you. To sum it all up, the expected price range, among the speakers present, was for December to trade from the high 50's to the low 70's.

New York futures may have hit the wall this week. After reaching a new life-of-contract high 6880 on Monday, December 07 fell due to an extremely overbought condition coupled with major weakness in corn. If you heard what Joe Nicosia said about farm commodities in general last Friday, that all the markets are really just trading corn right now, it makes since that a major drop in corn would signify the end of the cotton rally. Add to that the technical indicator of two daily closes below the 9-day moving average and you have the perfect opportunity to buy December 07 puts to protect the price of this crop in the field. A December 07 62 cent put, bought for 2 cents or less, would net the typical High Plains cotton farmer 2 to 3 cents over loan, with the upside still open if this market is only catching its breath before heading higher. I don't think you could go wrong setting a floor under this price on at least half the crop right now, either with put options or a minimum price contract with a merchant.

Net Upland sales of 29,400 running bales were the result of increases for Turkey (11,900), China (10,900), and Thailand (7,100), partially offset by decreases for El Salvador (1,700), Taiwan (1,400), and Hong Kong (1,300). Net sales of 59,800 for delivery in 2007/08, which begins August 1st, were primarily to El Salvador (30,300), China (8,200), Mexico (5,400), and unknown destinations (5,100). Exports of 423,700 went mostly to China (136,000), Turkey (84,900), Pakistan (47,500), Mexico (34,100), and Indonesia (23,400). Net American Pima sales of 5,100 were mainly for Japan (1,200), Pakistan (1,100), India (1,100), and Hong Kong (1,000). Net sales of 49,000 for delivery in 2007/08 were primarily for China (32,300), Pakistan (6,900), and India (4,900). Exports of 14,000 were largely to China (3,600), Italy (2,600), Taiwan (2,100), South Korea (1,400), Indonesia (1,300), and India (1,100). Total exports of 437,700 were more than sufficient to meet the most recent 13.0 million bale estimate from USDA. In fact, if we continue at this pace, USDA will likely set the final export number at 13.25 million bales once the marketing year is over.

The FARM Assistance strategic analysis program can help you make long-term decisions like whether or not to buy or lease the adjoining farm. And if you buy it, what repayment terms can you afford? Decisions like these are what the FARM Assistance program was designed for. Call me at 806-746-6101 to make an appointment.

Crop conditions, as reported by area county extension agents, remained about the same as last week with an increase in acres rated excellent and an increase in acres rated very poor. I guess the warmer drier weather has that effect on cotton. Those plants with little weed pressure and a good root system progressed nicely this week, while those under some stress responded poorly. Overall agents indicate that the crop is 1 to 2 weeks behind with most areas moving in to large scale bloom this week. Agents tell me personally, that real first bloom around Lubbock needs to be about the 10th, not the "mythical" 4th of July usually talked about at the coffee shop. Of course, where I grew up, growing Acala cotton, having blooms by the 4th of July really was a necessity. With the varieties we are growing today, however, I don't think it is quite as important.

Scattered rains brought some hail, but no extremely large events that would push up abandoned acreage significantly. Plainview and Denver City were the only Southern High Plains locations to receive more than an inch this past week. The Rolling Plains all the way from Silverton and Turkey down to Spur, Jayton and Aspermont received 1 to 2 inches. Heat unit accumulation continues to be our major concern with Lamesa topping 1,000 since the first of May, Lubbock at 960 and Halfway at 818. The last 7 days did pretty well with all 3 locations racking up more than 100 growing degree days for the week. That makes the fourth week in a row of over 100 units per week. Combine that with modest rains and you have the steady improvement in crop conditions we have seen the past few weeks.

On the financial side, the cost of energy and fertilizer remains high. The only good news is that with the reduced need to irrigate, area farmers should be able to afford much needed fertilizer. In my travels this past week, the lack of sufficient fertility was my major concern. The other problem we are facing when it comes to maximizing the potential of this crop is the lack of operating funds, due to the unprofitable crop many farmers had last year. When I get home next week, we will start looking into the relationship of yield and profit. Strangely enough those two don't always move in the same direction.

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. Also, to listen to archived recordings of the Ag Market Network conference calls, as well as weekly commentary from Mike Stevens, go to the AgMarketNetwork.net website. The next conference call will be August 14th at 7:30 a.m.

That's your South Plains cotton update for Thursday, July 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.

Jay Yates, Extension Risk Management Specialist at the Lubbock Agricultural Research and Extension Center.

It's been almost a month since the first bale of cotton was hand picked on the Swanberg family farm in the Rio Grande Valley on June 29th. Twelve days have past since December 07 posted the life of contract high 6880. In O.A. Cleveland's newsletter last Friday he said he felt that would be the highest December would ever reach this season. Quoting the headline on my myspace page "You might be right." This week has seen trouble penetrating the 38% retracement point of 6226. At the same time the last 2 days have attempted to close the gap left on Friday at 6430. Look for another attempt to close that gap today, opening the way to lower prices. We have already had 5 closes under the 18-day moving average and the 9-day average crossed the 18-day average yesterday. If the 6226 level does not hold, look for a rapid descent to the 50% retracement point of 6020. That would put us squarely back in the middle of the 9-month long range between 56 and 63 cents. Fundamentals for this crop really haven't changed much since then, so it is reasonable to believe that we will stay in that range. The only hope for higher prices on this year's crop is the pull of December 08 to compete for acres with grain. As mid-south farmers harvest their cotton, they will already be making the decision this fall to double crop $6 wheat with $8 beans or save the land to grow loan cotton next year. Since the maximum spread between two futures contracts should never be much more than the cost of carrying that cotton forward, December 08 could pull December 07 up with it.

Net Upland sales of 23,700 running bales were the result of increases for China (26,100), Thailand (5,200), Mexico (2,800), and Japan (2,200), and were partially offset by decreases for Taiwan (13,000) and Hong Kong (3,400). Net sales of 93,000 for delivery in 2007/08 were primarily for Mexico (35,500), China (29,400), and Guatemala (9,600). Exports of 450,300 were primarily to China (152,600), Turkey (79,500), Indonesia (54,400), Mexico (29,500), and Pakistan (28,100). With the addition of 5,600 bales of American Pima, total shipments of 455,900 running bales exceed the number needed to reach the USDA estimate of 13.0 million. By my calculation we need to ship less than 400,000 running bales over the next 2 weeks to make that mark.

The FARM Assistance strategic analysis program can help you make long-term decisions like whether or not to buy or lease the adjoining farm. And if you buy it, what repayment terms can you afford? Decisions like these are what the FARM Assistance program was designed for. Call me at 806-746-6101 to make an appointment.

The universal comment from local county extension agents is that the crop is 2 to 3 weeks behind, but looks excellent. Everywhere I go people are afraid to even use the "F" word. Freeze that is, as in early October. Most area cotton is blooming, however you don't have to travel far to see some really small crops. Southeastern Scurry county, which it seems I have been traveling through twice a week lately, looks as good as I've ever seen it. Other farmers tell me this is the best looking crop they have ever had, if you just don't look at the calendar. They also remind me that late cotton on the High Plains is nothing new and it seems like we are always praying for a warm September to finish the crop.

Rainfall totals this week tapered off with only Gail, Lamesa and Lake Alan Henry receiving more than an inch of rain. Most locations received less than half an inch with many measuring no precipitation at all. Daytime highs remain in the lower 90's. That's not very good for accumulating lost heat units, but it sure makes the cotton look pretty.

On the financial side, the most important thing happening right now is debate on the new farm bill today in the House. Yesterday saw a flurry of press releases from the Administration and House Republicans and Democrats. The House republicans are threatening to block the bill as long as it has legislation to start taxing U.S. subsidiaries of foreign corporations to pay for increases in the bill. The President is threatening to veto the bill because it doesn't go far enough in reforming the system. Which is the administration catch phase for lower payment limits and income testing. On the Senate side they haven't even started working on it. Can you say one-year extension? Also, don't forget about disaster assistance for last year's dryland crop. If you had 60% CRC insurance on your cotton, the disaster payment will be about one-third of the insurance indemnity. If you want to calculate a more precise estimate of what you should have coming, go to the lubbock.tamu.edu website and click on the 2007 Disaster Calculator link in the center of the page. The only feedback I have received is that the payment it calculates isn't enough. But hey, I only do the math; I didn't set the payment rate.

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. Also, to listen to archived recordings of the Ag Market Network conference calls, as well as weekly commentary from Mike Stevens, go to the AgMarketNetwork.net website. The next conference call will be August 14th at 7:30 a.m.

That's your South Plains cotton update for Thursday, July 26th. 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.