South Plains Cotton Update

South Plains Cotton Update on Ag Talk on Fox Talk 950 for Thursday October 18th, 2007.

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

The World Ag Supply/Demand report which came out on Friday held no great surprises for the cotton market. I won't go over all the numbers again, since I'm sure all of you have had ample opportunities to hear them before. The key items in the report however were that the US export number remained unchanged, US production was raised (entirely out of West Texas production), and the world carryover was increased, resulting in a stocks-to-use ratio of 42.5% compared to 40.4% last month. If you listened to Mike Stevens on his report last Friday or on the Ag Market Network, then you already know that all the increases in world production, use and carryover can be traced directly back to China.

The market responded to the news pretty much as one would expect without any major reaction. December '07 has trade in a 3-cent range from 62 to 65 for the entire month of October. View Dec 07 price chart Yesterday's close was 65 points lower than the previous Wednesday, but both were right in the middle of the range. If we continue this trend much longer, we will see a convergence of the 9, 18 and 40-day moving averages. The last time that happened was August 10th right before the 6-cent decline over the next 7 days. I'm not saying that's what I think is about to happen, but be ready to act on any action that breaks out of the 62 to 65-cent range. A similar range between 71 and 74 has bound December '08 for the month of October as well. Go back and listen to the recording of the Ag Market Network to hear Mike's suggestion for how to buy December '08 options for a reasonable cost. If this market moves out of this range to the upside we might want to consider using that strategy to buy 75-cent puts.

Total cotton shipments of 251,900 is still about 50,000 bales short of the amount needed to meet the USDA estimate of 16.7 million bales, which is unchanged from last month's forecast. Net Upland sales of 158,500 running bales were primarily to Turkey (58,100), China (22,900), Indonesia (20,500), Thailand (10,400), and Hong Kong (10,300). Exports of 246,600 were mostly shipped to China (104,300) Turkey (38,700), Mexico (26,500), Indonesia (16,000), and Taiwan (10,200). Net American Pima sales of 10,300 were primarily for Switzerland (7,000), Pakistan (900), Egypt (900), and China (700). Exports of 5,300 were mainly to China (2,200) and Pakistan (1,400).

Certified stocks continued to build this week with 596,240 in warehouses, 7,278 bales issued by USDA and 37,327 awaiting review. USDA Loan stocks of Upland cotton increased 389,246 bales to 912,756, while ELS stocks decreased 1,383 bales to 22,181.

The FARM Assistance analysis program can help you make strategic business decisions like whether or not to upgrade your harvest equipment or have the crop custom harvested. And if you buy, 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.

County Ag agent reports from last week indicated that defoliation was in full swing, with harvest just getting underway. As quickly as the harvest aids are doing their job, under the ideal weather conditions we have had, we can now say that harvest is in full swing across the area. Most gins are staying caught up with the strippers right now, so we don't see lots of modules on the ends of the fields, but farmers I have talked to say yields have been better than they estimated before starting. High winds across the area yesterday slowed things down a bit, but the current 15-day forecast has nothing but sunshine and more wind. If you guessed yesterday for the first freeze, you lost. Looks like the next best chance will probably be right on the average of November 1st in two weeks.

Responding to a question about compliance with the WTO related to the cotton program, Senator Harkin had this response, "Hopefully in the next few years, areas of the country that are planting cotton will begin to shift their crops and begin to grow other things." Listen to Harkin comment about cotton Maybe my next big economic analysis should be on the "Economics of Converting a Cotton Gin into a Cellulosic Ethanol Plant."

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 recordings of the Ag Market Network conference calls, as well as weekly commentary from Mike Stevens, go to AgMarketNetwork.net.

That's your South Plains cotton update for Thursday, October 18th. 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.