South Plains Cotton Update on Ag Talk on Fox Talk 950 for Thursday February 21st, 2008.
Jay Yates, Extension Risk Management Specialist at the Lubbock AgriLife Research and Extension Center.
The big news on the High Plains of Texas this week is rainfall, or the lack of it. The front that moved through last Saturday and Sunday brought much needed moisture to the parched landscape. The only problem is that it wasn't much. The most rain fell in the Northern Rolling Plains with Memphis receiving 1.21 inches. The top reading in the Southern High Plains was Tulia with 1.03 inches. The area around Lubbock received about a half an inch, while the southwest region received the least with Denver City, Snyder and Seminole all registering less than a tenth of an inch. Area county agent reports continue to cite dryness as the major threat to production for all crops in 2008.
Fiber quality for the week ending February 14th remains excellent with the predominant color grade of 21+, leaf 3, staple 36.0, mike 4.1, strength 29.3, uniformity 80.6, and bark of 9.2%. For the same time period Lamesa had color grade of 21+, leaf 3, staple 35.8, mike 4.2, strength 29.0, uniformity 80.5, and bark of 17.7%. Season totals are almost identical, with lower total bark counts, as this crop has been one of the most consistent in history. I hear most of the contract talk is for base grade 31-3-35 or 36. Who would have imagined that only 10 years ago in Lubbock. The world has most definitely changed (For the better, I might add).
I still don't have a good handle on what might happen with High Plains acreage this year. The most frequently requested alternative analyzed with FARM Assistance so far this year is 50/50 cotton and grain, or all grain, versus the standard of all cotton. The price for milo has finally gotten high enough that the alternatives are nearly equal. That wasn't the case last year, even though grain prices had risen dramatically compared to cotton. The producers who made the switch last year were fortunate to have timely rains to make up the difference. Of course the extremely dry winter has only those with adequate irrigation even considering corn. Peanut acreage will most definitely increase back to pre-2005 levels as prices have seen significant advances as well.
With both commodity and input prices at or near all-time highs, how do you decide which direction to take your farming operation? Should you buy a new combine or a cotton picker or just update the old strippers? All of these questions are what the FARM Assistance program were designed to help you answer. Call me at 806-746-6101 to schedule an appointment.
USDA Loan stocks of Upland cotton have already started to decline slightly to 10.11 million bales as of February 12th. ELS stocks are nearly 297 thousand. Certified stocks are steady with a total of slightly more than 506 thousand bales in warehouses, 11,139 issued by USDA and 61,234 awaiting review.
The export report for the week ending February 14th is delayed until Friday due to the President's Day Holiday on Monday. I just want to make a little additional comment on the last report. Currently export sales and shipments are on track to reach a level of 15.4 million 480-pound bales this marketing year. USDA's latest estimate lowered total exports to 15.7 million from 16.0 million. If things don't pick up in dramatic fashion rather quickly, expect the Agency to continue to decrease the estimate as we fall short each month. That would increase ending stocks to 8.5 million bales, one million less than last year, but still nearly double domestic consumption.
December '08 gapped higher on the open this morning to just over 80 cents. Higher markets overall this week after the convergence of the 9, 18 and 40-day moving averages last Friday has positive technical implications. With the major influence of the long only speculative funds we may be in for another run up. The only negative factor right now is that when prices have been this high in the past, exports sales have dried up. An 80-cent price also means it is time to revisit the floor setting strategy of buying an 80-cent put, selling a 70-cent put and selling a 90-cent call for a net transaction cost of 130. Just remember that is a marginable position, so have a plan in place to buy back the put and call on extreme opposite price moves. With the volatility we have seen this year, that should be no problem.
The May contract also gapped up this morning on the open, although with the advent of electronic overnight trading I'm not sure that chart gaps have quite the significance they used to. Regardless, this should give the opportunity to look for positive equity offers on loan cotton or good prices for cotton which is just now being ginned.
For more information on cotton marketing be sure to check out Dr. John Robinson's weekly cotton marketing newsletter by clicking on Market Outlook under the Resources drop down list 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.
I would also like to take this opportunity to invite everyone to join us for the final presentation of the South Plains Profitability Workshop on March 4th (Yes, that's primary election day) at the Texas AgriLife Research and Extension Center at 1102 E. FM 1294 just north of the Lubbock airport. The cost is $20, which includes a delicious lunch and a take home CD. To get a head count for lunch, we would appreciate a call at 806-746-6101 to let us know you are coming. The new website associated with the workshop is southplainsprofit.tamu.edu.
That's your South Plains cotton update for Thursday, February 21st. 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.
