South Plains Cotton Update

South Plains Cotton Update on Ag Talk on Fox Talk 950 for Thursday January 3rd, 2008.
Jay Yates, Extension Risk Management Specialist at the Lubbock Agricultural Research and Extension Center.

Harvest is mostly complete across the Southern High Plains of Texas today. However, the landscape is dotted with what looks like mysterious new communities with multi-colored roofs. As you get closer you realize that it's just another large collection of modules waiting to be ginned. It will most likely be another couple of months before we see the majority of all the modules gone from the fields. The classing offices in Lubbock and Lamesa, which have been staying pretty up to date with receipts from gins, have graded just over 3.5 million bales of the forecasted 5.3 million. That's about 150,000 modules waiting to be ginned.

Fiber quality remains excellent with last week's average grade of color 21+, leaf 2+, staple 36.0, mike 4.1, strength 29.5, uniformity 80.7, and bark of 4.5%. Lamesa had the same to slightly higher grades with 9.0% of bales classed as containing bark. This should be the best quality crop ever sold from the High Plains. If we can just get over the sigma of being West Texas "stripper" cotton, that should translate into a higher value once the export customers start buying the crop out of the loan.

USDA Loan stocks of Upland were up nearly a half million bales this week to 9,314,305. ELS stocks also increased to 233,636. Certified stocks continued their slow decline this week with 543,344 bales in warehouses, none issued by USDA and 36 awaiting review.

With all the talk of record annual rainfall back in July, it is surprising to look at the West Texas Mesonet's year-end data. In an area with Dimmitt and Hart at the center and Hereford, Muleshoe, Olton and Tulia at the edges, total annual rainfall was the same or less than last year. Most locations wound up only slightly above average for the entire year. A small area around Floydada and most of the Rolling Plains received the most rain this summer. An almost complete lack of any moisture in the month of October, followed by a very dry November and December brought the annual totals back to the average line and provided for one the smoothest harvests in recent memory. 2007 Rainfall Map

We are set up to have another exceptional year with just a few timely spring rains. The current drought index map shows adequate to above average moisture for nearly all the High Plains counties. With the current high price of diesel most farmers are not doing a lot of heavy tillage around Lubbock. That may turn out to be a blessing for the 2008 crop, as presently good soil moisture won't be wasted to winter evaporation. Drought Index Map

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.

Due to the New Year holiday there is no export report today. The next report will be released Friday, January 4th. I wanted to take this opportunity to point out a few facts about exports. The top 4 U.S. export customers for all of the past five years have been China, Turkey, Mexico and Indonesia. In the 2002/03 marketing year Mexico was number one at the height of the move of U.S. mills to Mexico following the adoption of NAFTA. Which, by the way, became fully enacted on Wednesday. Mexico is now number 3 and China is number 1, a position held since the 2003/04 marketing year, due to China's emphasis on increasing textile exports. Year-to-date export sales to China have risen from 750 thousand bales this time last year to over 1.6 million bales this year. Much of that came early in the season before the Asian crop began to come off. The most troubling fact about the Chinese export figure right now is the lack of outstanding sales. Current sales of cotton waiting to be shipped to China stand at 260 thousand compared to 262 thousand last year. Turkey, the number 2 customer for U.S. cotton exports, has currently received 874 thousand bales compared to 455 thousand bales last year. Outstanding sales are 304 thousand compared to 543 thousand last year.

Well, we set a new life-of-contract high on the December 2008 contract on Wednesday at 7670. The uptrend, which started after reaching a low of 7111 on December 5th, continues its march toward 80 cents. I personally don't think it will make it before we have another sell-off. With that said, I believe January could offer some positive opportunities to sell old crop from the loan and maybe place a floor under at least some of the 2008 crop. After a thorough study of the grounds in the bottom of my coffee cup this morning, I believe March is on its way to one final challenge of its life-of-contract high 7145 back in July. If we get close to that, the opportunity may exist to sell some of your freshly ginned cotton without even putting it into the loan. The only current concern is that the market is currently in an overbought condition with an RSI of 70 on the March contract and 73 on the December. I look for the current uptrend in December to falter between 7900 and 7950, so that might be a good time to look at locking in a floor with the purchase of an 80 cent put combined with the sale of a 90 cent call and a 70 cent put for a net price of 100 or less, if that is the kind of marketing strategy you are inclined to. If not, then at least start a conversation with the cotton merchant of your choice when we reach 7900 about pricing alternatives they may be offering. Mar 08 Price Chart

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, January 3rd. This is Jay Yates, Risk Management Specialist with the Texas AgriLife Extension Service. 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 January 17th, 2008.
Jay Yates, Extension Risk Management Specialist at the Lubbock Agricultural Research and Extension Center.

I think we can safely say that cotton harvest is complete in the Southern High Plains of Texas today. There may still be some cotton yet to be harvested in the Rolling Plains, but you would be hard pressed to find a single field that has not been harvested up on the Caprock. Ginning however still lacks 3 to 6 weeks depending on the area and the gin. As of January 15th, the Lubbock and Lamesa classing offices had inspected samples from 4.058 million bales of the 5.43 million estimated by the Texas Ag Statistics Service. The Southwest classing offices, all of which are in Texas, have combined to grade 6.5 of the 8.5 million bales projected for the region.

Fiber quality remains excellent with the predominant color grade of 21+, leaf 2+, staple 36.0, mike 4.1, strength 29.3, uniformity 80.6, and bark of 4.5%. Lamesa had the same to slightly higher grades with 9.4% of bales classed as containing bark.

USDA Loan stocks of Upland climbed to over 10 million bales this week. ELS stocks also increased to just over 270 thousand. Certified stocks continue to decline with a total of slightly more than 509 thousand bales in warehouses, 1172 issued by USDA and 36,891 awaiting review.

Bitterly cold weather hit the Southern High Plains yesterday backed by a steady north wind just in time for the Lubbock County Stock Show this weekend. The judging begins Thursday evening with the goat show at 6:30 p.m., then continues with steers on Friday at 2:00 p.m., followed by lambs 30 minutes after the end of the steer show. The pig show kicks off at 8:00 a.m. on Saturday morning and will likely last most of the day. Luckily for exhibitors there has not been any moisture with the change in weather. Not so fortunate for area wheat producers and those wanting to build up a little soil moisture for spring crops like cotton.

In my travels across the High Plains north of Lubbock this week, I not only saw that cotton harvest was complete, but I noticed that field preparations for the new year have really gotten off to a good start after a brief rest form the intensity of a big season. High diesel prices seem to have most producers opting for reduced tillage operations to get their field ready for planting season. What will people plant? We are hearing further increases in grain acreage with milo contracts at $8.50/cwt. and higher. Peanuts are also coming back into play with offers at $500/ton and up.

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.

Sales of Upland cotton were nearly 10-times higher than the marketing year low sales figure from 2 weeks ago thanks entirely to sales of 323,600 bales to Mexico. Net Upland sales of 505,400 for the week ending January 10th are most likely what was responsible for the immediate rebound of New York futures prices last week after the limit down move on Thursday, well below the uptrend line, which appears to have spurred massive sales to Mexico. The rest of the world however seems to have just kept on the normal pace with China purchasing 37,000 running bales, Turkey 35,300, Pakistan 32,100 and Indonesia 17,000. Shipments still lag the necessary pace to meet the 16.0 million bale estimate at only 165,600 of Upland and 20,600 bales of Pima. Upland shipments went primarily to Turkey 25,100, Indonesia 22,900, China 20,600, Mexico 17,400, Vietnam 14,100 and Thailand 12,600 running bales.

View Cotton Price Chart

Another new life-of-contract high was set this week for both the March and December contracts on the New York Market on Monday. The March contract fell just shy of the 73-cent mark at 7296 and the December contract made it above 80 cents to 8056. Since we are at the 80-cent level that I referred to 2 weeks ago, it is time to see what the alternative pricing strategies would actually cost today. A 70-cent put is currently going for 220, an 80-cent put is 640 and a 90-cent call is 320. Therefore the simplest thing to do would be to buy 70-cent puts for 220, setting a cash floor of 6300 to 6500 depending on the quality of cotton produced this season. The more complex strategy of buying an 80-cent put and selling a 70-cent put and selling a 90-cent call would cost a net of 100. This strategy would also come with a margin requirement on the put and call which were sold. To successfully execute this strategy we need continued volatility in the market allowing the re-purchase of both the put and call when the value of each goes below 100. In other words, if the price continued to climb to about 85 cents, the put should be down to a value of 100 or less giving the opportunity to buy it back, and eliminate the risk of future margin calls. If the price were to retreat to the 70-cent level or below, the call can then be bought back for 100 or less, making the final price of the 80-cent put around 300 to 350 resulting in a cash floor price of 72 to 74 cents. Not bad when we have been selling cotton for loan price plus 2 to 5 cents equity for the past 5 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, January 17th. This is Jay Yates, Risk Management Specialist with the Texas AgriLife Extension Service. Join me each Thursday at this same time right here on Ag Talk on Fox Talk 950.