South Plains Cotton Update

South Plains Cotton Update on Ag Talk on Fox Talk 950 for Thursday December 6th, 2007.

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

As the price of cotton continues to slide in the face of record high wheat prices, I continue to get reports from the field that many producers are following their cotton harvesters with wheat drills. The window of opportunity is almost over for that to continue. However, the continued lack of adequate moisture will leave us guessing for quite some time as to just how much wheat we will actually have to take to grain. If it starts raining or snowing in December, we could have a major reduction in cotton acreage again next year. If it stays dry and the wheat fails, I look for the same cotton acreage next year as this year. Drought Index We are also getting a lot of questions about soybeans in the counties north of Lubbock. Good peanut prices already being offered for next season will also shift some acres out of cotton from Lubbock south. The other factor affecting planting decisions for next year will be fertilizer prices. I didn't think it was possible, but nitrogen prices are 75% higher than this time last year and phosphate has doubled. We are going to have to take a hard look at the marginal cost/return of fertilizer for $4 corn, $9 wheat and $11 beans versus 63-cent cotton.

The Lubbock classing office is currently checking grades on over 300,000 bales per week. Currently standing at 1,786,764 bales classed as of December 5th, with the Lamesa office at 533,977. The average grade is still color 21, leaf 2, staple 35.9, mike 4.1, strength 29.6, uniformity 80.7 and only 1.5% bark. The grades at Lamesa are virtually the same with only slightly higher bark percentage at 3.3%. We won't see a significant increase in bark due to the wet weather for quite some time due to the fact that many gins won't get to the cotton harvested after Thanksgiving until late January or February. Statewide, 4.12 million bales have now been classed.

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.

Net Upland sales of 219,400 running bales were down 12 percent from the previous week, and at the bottom end of the industry estimate of 200-300 thousand. The major buyers were China (42,100), Mexico (35,600), Indonesia (31,700), Turkey (29,100), Thailand (18,600), Brazil (14,100), and Japan (11,500). Exports of 212,300 went to China (62,800), Turkey (48,200), Mexico (33,000), Indonesia (12,200), and Pakistan (9,700). Net American Pima sales of 9,900 were primarily for Pakistan (3,100), India (3,100), Peru (2,200), and Taiwan (1,600). Exports of 21,600, a marketing-year high, were mainly to Taiwan (4,500), Pakistan (4,200), India (2,800), Indonesia (2,500), and Thailand (1,800). Total shipments of 233,900 running bales is still significantly short of the 300 thousand plus bales per week needed. The current pace of exports would indicate a final tally of just over 15 million bales as opposed to the current estimate of 16.2 million bales. The next forecast is due from USDA on Tuesday, December 11th. Given the weak export numbers we have had in November and the fact that the market has already been on the decline, I would anticipate another drop in estimated exports coupled with further increases in the size of the Texas crop to combine for an even larger US carryover.

Certified stocks declined yesterday with 592,967 in warehouses, due to 2,640 bales being decertified. Stocks are up compared to last week. There were also 1,993 bales issued by USDA and 8,029 awaiting review. USDA Loan stocks of Upland cotton increased over 700 thousand bales this week to 7,032,616. ELS stocks also increased to 124,025.

The nearby March '08 contract is currently trading on the expectation of a bearish World Ag Supply/Demand Estimate due out next Tuesday, December 11th. If the report is as expected, there will likely not be any further market reaction than what has already been built in. A surprise would have to come in the form of unexpected bullish news. Price Chart To listen to a full analysis of the report and commentary by top cotton market experts, come to the Posey Gin on Thursday, December 13th. Peter Egli of Plexus Cotton Limited will join the regular panel of Dr. Carl Anderson, Dr. O.A. Cleveland, Mike Stevens and Pat McClatchey for the monthly meeting of the Ag Market Network. I'm sure a lot of the talk will surround December '08 and what to do with next year's crop. However, many people still want to know what to do with this crop. First, take advantage of the one-month storage you will automatically be charged regardless of what the final disposition of your cotton is. If we haven't seen a substantial rise in equity offers by then, consider moving it to the loan. There will be pressure on prices to rise in the spring to compete for more acres, but since prices are already high enough in much of the world to encourage increased cotton plantings; don't expect it to be dramatic. The US will likely continue to lose market share next year. Second, consider the tax consequences of your marketing options. Much of this crop will not be in a bale until well after the first of next year. With last year's short dryland crop many producers could be left with little to no income this calendar year. Some type of minimum price contract for cotton still in modules with the option of taking an advance before the end of the year could also help smooth out the tax burden and avoid a wreck next year.

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, December 6th. 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.

South Plains Cotton Update on Ag Talk on Fox Talk 950 for Thursday December 13th, 2007.
Jay Yates, Extension Risk Management Specialist at the Lubbock Agricultural Research and Extension Center.

This week I listened to a presentation by Dr. Brent Bean about how wheat yields could be reduced by as much as 40% on wheat planted the first week of December. That would include dry planted September wheat that got its first rain Tuesday morning, like mine. The rain will be a big boost to all the irrigated wheat that has been nursed along to this point. I bet your wondering why a cotton market update starts out talking about wheat conditions. The condition of wheat on the High Plains north of Lubbock has everything to do with how much cotton will be planted in that area next year. As I stated last week, nobody knows at this point just how much wheat was planted behind this year's fall harvested crops, but it was substantial. Timely rains this winter will mean more wheat taken to grain harvest, which does not leave enough time to grow cotton on that ground next year.

The other thing about Tuesday's widespread rain that came from a thunderstorm in 36 degree weather is that it should refill that top 6 to 8 inches that had dried out, leaving us with a full profile going forward. A couple more timely rains like that between now and cotton planting time could set us up for another top 5 yield.

The crop report also came out Tuesday and the Texas High Plains, as represented by TASS districts 1-N and 1-S, remained at 5.3 million bales from 3.02 million harvested acres. That translates into the second largest crop in history and a record 842 pound overall average yield, 1040 in 1-N and 799 in 1-S.

The Lubbock classing office has graded over 2 million bales and Lamesa is just over 600,000. The average grade remains excellent at color 21, leaf 2, staple 36.0, mike 4.1, strength 29.6, uniformity 80.7 and only 1.4% bark. The grades at Lamesa are virtually the same with only slightly higher bark percentage at 3.7. Significant progress was made on harvesting this crop last week as the percent harvested increased from 76% the prior week to 82% the week ending December 7th, just before the front moved in. We won't see much progress in the next report since the recent storm dropped more than half an inch of rain across 39 of the 51 West Texas Mesonet sites. If 82% of the 5.3 million bales have been harvested and only 2.6 million has been classed, that means there are 1.75 million bales in modules out in the fields.

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.

Net Upland sales of 355,000 running bales were up 62 percent from the previous week and 69 percent from the prior 4-week average. The major buyers were China (88,500), Indonesia (65,000), Turkey (39,700), Pakistan (37,700), Thailand (26,300), and Mexico (25,400). Net sales of 12,300 for delivery in 2008/09 were mainly for Mexico (10,100). Exports of 273,200 were 29 percent above the week earlier and 48 percent over the prior 4-week average. The primary destinations were China (93,400), Turkey (62,700), Mexico (29,400), Indonesia (16,900), Thailand (13,800), and Vietnam (11,800). Net American Pima sales of 12,300 were primarily for Pakistan (5,000), India (3,300), Peru (1,300), and South Korea (1,000). Exports of 15,400 were mainly to China (4,900), Peru (2,800), Pakistan (2,700), India (2,100), and Germany (1,600). Total shipments of 288,600, although much improved, are still well below the 314,000 needed each week to reach the current 16.2 million bale USDA estimate.

This is where I have to admit that I was wrong last week. The new USDA Supply/Demand Estimate came out Tuesday and exports remained unchanged and as previously mentioned the Texas High Plains estimate also remained the same as last month. I still believe that the export number will likely drop some more in the future.

Certified stocks declined for the week with 555,247 bales in warehouses, 101 decertified, 2,276 issued by USDA and 5,175 awaiting review. USDA Loan stocks of Upland cotton increased another 600 thousand bales this week to 7,676,475. ELS stocks also increased to 141,333.

The March '08 contract surprisingly closed up 215 this week at 6525 compared to 6310 last Wednesday. The Supply/Demand Estimate must not have been quite as bearish as was anticipated. It also didn't hurt that the fed cut interest rates another quarter percent and wheat, corn and beans were all up substantially. The improved export sales number also reveals at what price level foreign mills are willing to step up and buy more cotton. Price Chart

The Ag Market Network conference call was this morning and if you missed it you can go to the website and listen when you have some time. Peter Egli was the guest speaker this month and the full panel of Mike Stevens, Carl Anderson and O.A. Cleveland joined him. The general consensus was optimistic for price over the next year, but the elephant in the room nobody likes to admit is there is the fear of recession. Peter Egli made the comment that "we are already in a recession if we just pick the right numbers to look at." They also emphasized a point I have made here about the '07 crop if you haven't already sold it. Put it in the loan and watch for any technical run-ups to unload it for 3 cents or better equity. The '08 crop looks to have a lot of potential to rise and a floor pricing strategy should be considered. To recap the price range projected by the panelist for the December '08 contract; Egli 71-85, Stevens 71-80, Anderson 72-78 and surprisingly bearish O.A. Cleveland 71-75. If O.A. is right and the quoted Goldman Sachs forecast of $14 beans and $5.50 corn is right, we may have the only cotton in the U.S. all within 200 miles of Lubbock.

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, December 13th. 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.

South Plains Cotton Update on Ag Talk on Fox Talk 950 for Thursday December 20th, 2007.
Jay Yates, Extension Risk Management Specialist at the Lubbock Agricultural Research and Extension Center.

Harvest is nearly complete in the Southern High Plains as even Eddie is almost done. The rain and snow the end of last week put everyone who wasn't finished out of the field until Tuesday or Wednesday. I had a good visit with Randy Underwood Wednesday on Ag Talk while Eddie was out trying to finish up harvest. There are a lot of modules out in the fields and probably will be for quite some time. The Lubbock and Lamesa classing offices have combine to grade just over 3 million of the over 5 million bales they will likely process this year. With harvest over 85% complete that leaves over 1 million bales in modules out in the fields. That's job security for module truck drivers.

The Lubbock classing office has graded 2.3 million bales and Lamesa is just over 700,000. The average grade remains excellent at color 21, leaf 2, staple 36.0, mike 4.1, strength 29.6, uniformity 80.7 and only 1.5% bark. The grades at Lamesa are virtually the same with only slightly higher bark percentage at 3.9%. Lamesa has started to edge up some on bark as the weekly percentage is up to 4.7%. Recent daily bark numbers at Lubbock have also increased to 3-4%. As more post storm bales come into the classing office, the numbers will likely continue to rise. However, a tremendous amount of this crop was harvested under ideal conditions.

The FARM Assistance analysis program can help you make strategic business decisions like whether or not to lease that additional farmland or look for something to buy. 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.

Easy come, easy go. As prices rise, export sales fall again. Net Upland sales of 133,700 running bales were down 62 percent from the previous week and 49 percent from the prior 4-week average. The major buyers were Pakistan (30,900), Indonesia (14,500), Turkey (13,800), China (12,600), Guatemala (10,700), and Thailand (8,900). Net sales of 6,100 for delivery in 2008/09 were mainly for Colombia (5,300). Exports of 150,200 were 45 percent below the week earlier and 28 percent under the prior 4-week average. The primary destinations were China (40,400), Turkey (29,600), Mexico (18,900), Indonesia (16,500), and Thailand (9,700). Net American Pima sales of 24,600 were primarily for Pakistan (10,600), India (8,700), Turkey (2,200), and Portugal (1,800). Exports of 20,300 were mainly to India (7,700), Pakistan (6,900), China (2,100), Germany (1,300), and South Korea (1,000). Total shipments of 170,500 were slightly more than half of the 318,000 running bales needed each week for the rest of the year to meet the current USDA estimate of 16.2 million 480-pound bales.

Certified stocks were back up slightly for the week with 557,257 bales in warehouses, 706 decertified, 545 issued by USDA and only 41 awaiting review. USDA Loan stocks of Upland cotton increased over 1 million bales this week to 8,678,773. ELS stocks also increased over 50,000 bales to 195,110.

The rise and fall of export sales in direct opposition to nearby futures reveals what an uneasy balance we have between supply and demand in the cotton market right now. Every time the price of cotton dips, foreign mills step up their buying. As cotton prices rise on strong exports and competition from wheat, corn and beans, the export sales dry up. There is a lot of talk of next year's plantings being only slightly higher than 9 million acres, with less than 15 million bales of total production. With usage the same as this year that would leave the U.S. with a record low carryover. But, if prices rise to compete for acres with grain, exports will drop off, increasing the carryover back to an average range. Maybe now you understand why we are range-bound in cotton. The other reason is that whatever happens in the U.S. with cotton is becoming less and less important as India will surpass this country as the number 2 producer when the final harvest tally is complete for this season.

As much as I hate to say it, the best strategy for marketing this year's crop appears to be to put it in the loan until the rest of the world runs out of cotton and has to turn to the U.S. as the supplier of last resort. I have been reading a lot about the WTO ruling this week and I just can't understand how the world's residual supplier is supposed to have so much negative impact on the price of cotton in Brazil and West Africa. I guess that's why those guys get the big bucks and I am just an Extension Program Specialist in West Texas. As far as the '08 crop is concerned, I think this will definitely be the year to have a brokerage account set up and ready to go to use a futures strategy to lock in an "in-your-pocket" price of 70 cents or better. As competition for acres heats up, there should be some unique opportunities to lock in the best price in years.

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, December 20th. Feliz Navidad y prospero Ano Nuevo. Have a merry Christmas and a prosperous new year.

South Plains Cotton Update on Ag Talk on Fox Talk 950 for Thursday December 27th, 2007.

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

Harvest continues on a stop and go basis for the few acres that remain in the fields. Most cotton is currently stored in modules, where the quality of the tarping gets tested every few days as another front preceded by high winds rolls through. There hasn't been much moisture with any of them, just wind and cold temperatures.

Due to the Christmas holiday, we don't have updated classing statistics today, but I would like to take some time to look into last Friday's Lubbock quality report. Over 92% of this crop has graded color 11 or 21; 86% is staple length 35 or longer with 42% being 37 or longer. The biggest increase over the past couple of years however comes in the micronaire reading with 76% having a mike between 37 and 49 and only 12% falling in the discount range of 34 and lower.

Due to the Christmas holiday there is no export report today. The next report will be released Friday, December 28th.

Certified stocks are back down a bit this week with 548,490 bales in warehouses, none issued by USDA and none awaiting review. USDA Loan stocks of Upland were up slightly this week to 8,868,453. ELS stocks also increased to 222,175.

The FARM Assistance analysis program can help you make strategic business decisions like whether or not to lease that additional farmland or look for something to buy. 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.

With the absolute importance of China in the world cotton market it is impossible to look at the U.S. commodity markets in a vacuum. Sometimes it appears that's what some analysts want to do. I have to say however, that those I respect the most, like O.A., Mike and Carl have not fallen into that trap. O.A. mentioned on the last Ag Market Network teleconference that he couldn't get eggs for breakfast at a meeting in Dubai because they didn't have any. Reports from Pakistan, India and the Russian Federation all confirm the shortage of wheat and flour. The rest of the world is worried whether or not they will have enough basic food supplies to feed their people, not about cotton. There is plenty of cotton in the world to meet the demand, especially when people don't have enough to eat and what they can get uses up all of their disposable income. I'm not saying this to bring you down after Christmas, just to tell you to be ready.

We are currently in a solid uptrend on the New York futures. Cotton is range bound by supply and demand forces outside the U.S. So, any time speculative trading and competition from the grain and oilseed complex runs cotton to the top of that range, we should be ready to sell some cotton. That's all I'm saying.
Luckily, every time we approach 62 cents the Chinese step in and buy more cotton. It appears they learned their lesson well in 2003 when the panic buying caused by massive flooding, which wiped out over 22 million acres, ran New York Futures to over 85 cents. The Chinese mills have been extremely disciplined in the buying of cotton over the past few years. They known the U.S. loan program will guarantee them a supply whenever they need it.

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, December 27th. 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.