I've been on the road in the South Plains District a lot more the past two weeks, so maybe now I have something to bring to the discussion of what the cotton crop looks like. We are just one week of cooler temperatures and widespread rainfall away from having a large number of good to excellent cotton acres or another week of triple digit temperatures and double digit wind speeds away from having a lot of poor to very poor cotton. Thankfully the forecast is for cooler, and maybe wetter, weather this next week. County agents reports for the South Plains nearly mirror the statewide cotton condition report on Monday with 13% very poor, 22% poor, 35% fair, 22% good and 7% excellent.
Comments last week at the Plains Cotton Advisory meeting were that about half the dryland crop (about 500,000 acres) was failed due to drought and that looks about right. Most of failed acreage appears to be planted to milo and a small percentage to blackeye peas. There also appears to be an awful lot of very small dryland cotton south of Lubbock. Timely rains and a long fall could make for a good crop there also. Good rains followed by hot, dry windy weather puts a strain on irrigation systems, but so far I haven't seen many irrigated acres in dire straights yet.
Other weather reports from around the world look like India has been catching up on rainfall and the floods in China will probably have little negative impact on cotton acreage. Don't count on a small world crop to bail this market out of the large carryover that has been accumulated over the past couple of years. According to the latest WASDE report, the world stocks-to-use ratio will be 51% for the 2009-10 marketing year. At least that is down from the 56% for the year that is almost over.
On the demand side of things, USDA revised the export forecast for the marketing year that is nearly over to 13.3 million bales. Shipments of 237,100 this week should be sufficient to keep up the pace needed. The reporting week included the Independence Day holiday, so there should be no problem shipping the 257,000 bales needed each week for the next 3 weeks. Sales on the other hand have been rather slow at only 133,000 for the week. That is why the export forecast for 2009-10 is only 10.2 million bales.
Cotton futures in New York continued their steady rise, but are having trouble posting a close above 64 cents. Options premiums are at a point where those who are familiar with spreads might want to consider getting in right now. A bear put spread, purchasing a 63 cent December put and selling a 58 cent put in the same month would have a net cost of 2.20-2.25 cents per pound. If prices continue to rise, you can buy back the 58 put and have a relatively cheap 63 put as downside price protection. If prices fall back the lower end of the trading range that we have seen this season, then you can take the 5 cent gain minus the 2.25 cent cost and add to the loan value received for the cotton and possibly balance the budget this year.
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. The Ag Market Network will be live from New York next Friday at 7:30.
Remember to tune in every Thursday at 1:30 p.m. for the South Plains Cotton Market Update live on Ag Talk on Fox Talk 950.
