South Plains Cotton Update - Friday, October 31, 2008
Lot's to cover this week so let's get right to it.
Harvest started in earnest this week 31,465 bales graded at the Lubbock Classing Office and 20,546 at Lamesa. Early grades are good, but there are some troubling trends for this stage of the game. First the good news, staple length and strength are both excellent at the two locations. Lubbock has an average staple of 36.55 with 83.7% length 36 or longer. Average strength is 29.42 with 69.3% 29 or greater. Lamesa has an average staple of 35.71 with 59.2% length 36 or longer. Average strength is 28.58 with 47.8% 29 or greater. The part of the grade, which concerns me most right now, is leaf and bark. Lubbock's average leaf is 3.45 with 42.2% greater than 3 and 17.7% of the bales were classed as bark. The average leaf in Lamesa was slightly better at 3.34, but they still had 35.7% with leaf 4 or higher and 21.8% of the bales with bark.
Weather has been perfect for drying up and preparing the crop for harvest since the first freeze which occurred on October 23rd as well as the following 3 or 4 days. The freeze was basically north of a line from Hobbs through Seminole, turning at Lamesa and going northeast through Slaton, Ralls Valley and Memphis. The freeze was more positive than negative, since the crop had pretty much run out of gas with the cooler than needed September temperatures and the fact that is saved some money on harvest aids.
Most of the cotton from the Texas High Plains will likely be going into the USDA loan program, since cash offers for new growth cotton are few and far between. The number of merchants available to buy the crop is decreasing as well. Nationally the bankruptcy of Paul Reinhart Inc., the fourth largest U.S. cotton merchant, and locally the closing of the Weil Brothers Lubbock office, combine to give growers fewer options on selling cash cotton. The credit crunch is taking its toll as well, as merchants find it hard to raise capital to purchase cotton to carry in inventory until it is sold. I guess that is why the loan program is still vitally important to the cotton industry.
Nationally, it was a dismal week for exports due in part to the cancellation of orders for 34,100 bales to China. Either demand has dropped off so much they no longer need the cotton (worst case) or they just want to replace it with new sales of lower priced cotton in the future. Export shipments of 250,100 were right on track with meeting the current USDA estimate of 13 million bales for the 2008-09 marketing year. New York futures prices declined another 354 points this week on the December 2008 contract when comparing Wednesday closes. As of today (Friday) we have a new life-of-contract low at 4364. That is the lowest price since February of 2005. Hopefully the August 2004 floor of 42 cents will hold. If so, the bottom should be in. That doesn't mean we are headed back up, just not any lower. If 42 cents doesn't hold I don't know how low we could go.
Since we are below the loan price of 52 cents, we are now more interested in managing the placement of cotton in the loan and redemption or forfeiture versus selling cash and taking the LDP. A change in the calculation of the AWP has resulted in an LDP that is 1.5 cents higher than it would have been otherwise. I wouldn't be in any hurry to sell cash cotton and take the LDP since the AWP is still dropping every week resulting in larger LDP's from one week to the next. Besides, the merchants aren't really looking for any cotton right now anyway.
