Agfax Buzz:
    May 11, 2012
    150pxcotton_bolls_mature_040928_077

    Shurley On Cotton: Supply And Demand News Hammered The Market

    AgFax.Com - Your Online Ag News Source

    By Don Shurley, University of Georgia

    Dreadful supply/demand news hammered cotton prices yesterday and today. Dec12 closed at just over 79 cents (down 4 cents) yesterday and as this is being written, is down another 3 cents today.

    No one saw this magnitude of downturn coming.

    Rain has also returned, and while needed and good for the crop, this combined with continued bearish economic news has really hammered the cotton market. While recent rains have improved planting moisture and aided early development, this does little to yet alleviate the longer term drought situation. Rain of mostly ••• to 1••• has been widespread over the Cotton Belt during the past 7 days. Some areas have had more especially in central and south Texas and in smaller areas elsewhere. Prices had already begun to weaken over the past week or so due to the rain and expected improved crop prospects. But yesterday’s USDA numbers added even more supply-side burdens and prices have tumbled as a result.




    So, cotton has really taken it on the chin and is now backed up against the ropes. Will prices fight back and recover? The answer is, probably so. Dropping 6 to 7 cents in 2 days is not that uncommon anymore and this may end up being an over-reaction. But the more pertinent question is how much can prices come back if they do? Not much good can be done by panicking and selling at this point.

    Let’s get out of panic mode and lay emotions aside and take a closer look at the numbers…..

    USDA projects the 2012 US crop at 17 million bales (9% above 2011) based on the March planting estimate of 13.16 million acres. Because of weaker prices over the past 2 months, however, actual acres planted may come in at less than this—in the neighborhood of maybe 12.8 to 12.9 million acres. We’ll find out in the end of June report. The drought situation is not over and we will likely still be in a weather market the rest of the season and especially so if acreage comes less than 13 million.

    World production for 2012 is expected to be down by 6.35 million bales. Production in the US is expected to be up but China down, India down, Pakistan down, Australia and Brazil down.

    World cotton consumption for 2012/13 is expected to increase by almost 3••• million bales. This is good news but although production will be down, it will still outpace demand by almost 7 million bales. As a result, 2012 crop Ending Stocks are expected to balloon to almost 74 million bales—almost 7 million bales more than 2011. It is this potential continued growth in stocks hanging over the market that has caused prices to tumble. As mentioned in previous newsletters, this problem has been building for months now. USDA’s May report for 2012 just further exacerbates the situation.

    So, recent rains withstanding, although we could still be in a bit of a weather market, this large stocks situation in plain terms means the market doesn’t need to care as much about that. This means that although a weather-driven rally is still a possibility, it will likely be a tougher hill to climb. At this point, prices have fallen so far so fast that you hate to panic and jump in to add to sales now. It might be risky but it seems better to wait for a recovery first. That being said, given the stocks situation, a rally back to the 83 to 85-cent level would be quite an achievement.

    The end of June USDA Acreage report will have some influence. The March number for Georgia was 1.4 million acres. I thought at the time that was a little too much. With prices weakening, cotton acreage has likely slipped nationally but perhaps not as much here. I think GA acreage will likely be around 1.3 million. We are long past prime corn planting time and soybeans, although attractive price-wise, are too risky in non-irrigated situations. Cotton wins in non-irrigated situations. Soybeans may gain some acres but at this point in time, I think the swing acreage is between cotton and peanuts. Weaker cotton prices tend to play in favor of peanuts but cotton remains more attractive from a risk management/crop insurance perspective (94 cents Projected Price).

     


    Leave a Reply

    Name and Email Address are required fields. Your email will not be published or shared with third parties.

    Agfax Cotton News

    Doane Cotton Close: Traders Develop Jekyll and Hide Psychology9-18

    AFB Cotton Close: Dec. Posts Losses but Maintains Support9-18

    Tennessee: Cotton Yield Monitoring with the Case-IH and Deere Pickers9-18

    DTN Cotton Close: Slips to 8 Session Low9-18

    Most Farmers Willing to Take More Steps to Improve Water Quality, Says Study9-18

    U.S. Drought Outlook: Improvements in Texas, Southwest9-18

    DTN Cotton Open: Remains in Red after Sales Data9-18

    U.S. Energy: Shale-Focused Companies’ Financial Performance Improves9-18

    Gasoline Prices: Average Falls 5 Cents9-18

    Propane Stocks: Rise by 1.4M Barrels9-18

    Diesel Prices: Decrease by a Penny9-18

    Keith Good: USDA Approves Use of Dow’s New GMO Corn, Soybeans9-18

    California Cotton Defoliation: Dealing With Whitefly And Variability In 20149-17

    DTN Cotton Close: Ekes Out Marginal Dec. Gains9-17

    42 California Counties Designated Natural Disaster Areas9-17

    DTN Fertilizer Trends: Rabobank Forecasts Higher 3Q Retail Prices9-17

    Cotton in Southwest: Need More Heat; 4-Bale Dryland; Pigweed Plans – AgFax9-17

    DTN Cotton Open: Futures Inch Slightly Higher9-17

    Keith Good: 18.3B Bushels of Corn, Soybeans — Where to Put it All?9-17

    Doane Cotton Close: Renewed Selling on Overhead Resistance9-16

    AFB Cotton Close: Dec. Continues Lower9-16

    DTN Cotton Close: Dec. Settles Modestly Lower9-16

    Texas Crop Weather: From Too Little Rain, to Too Much Rain, Too Early9-16

    Non-Land Production Costs Unlikely to See Much Decline in 20159-16

    Tennessee: Harvest Stalled by Late Week Rains – USDA9-16

    AgFax Cotton Review: Chinese Acreage Declines; Weather Damages Crops in India, Pakistan9-16

    DTN Cotton Open: Slips to Slight Losses9-16

    Mississippi: Cotton Varieties Planted Report Released by USDA9-16

    Keith Good: USDA Rates Corn Crop 74% Good or Excellent, Soybeans 72%9-16

    Texas: Corn Harvest Begins to Wind Down – USDA9-15

    Oklahoma: Small Grain Planting Underway – USDA9-15

    California: Rice Harvest Begins in Record Heat – USDA9-15

    Alabama: Scattered Showers Provide Minor Benefit to Mature Crops – USDA9-15

    South Carolina: Corn, Tobacco Harvests Wind Down as Rains Improve Crops – USDA9-15

    Georgia: Rains Help Crops, Soybean Harvest Begins – USDA9-15

    Mississippi: Corn Harvest Winding Down, Soybean Harvest in Full Swing – USDA9-15

    Arkansas: Rains Slow Harvest, Corn Yields Look Good – USDA9-15

    North Carolina: Corn Harvest Half Finished as Rains Delay Field Work – USDA9-15

    Florida: Peanut Harvest Begins – USDA9-15

    Doane Cotton Close: Post-Report Strength Wanes9-15