HOT, HOT, and then HOT! , best describes the past few weeks. Record high temperatures have been recorded across much of the Cotton Belt. Coupled with the high humidity and you get triple digit heat indices making outside activities not only uncomfortable but downright dangerous.
But all is not unpleasant, for air temperatures aren’t the only thing heating up, so has the cotton market. To the surprise of many, prices broke from their narrow trading range earlier this month gaining over eight cents and reaching a two year high. We’ll discuss the effect both of these are having on this year’s crop, but to the latter, I say bring on the heat!
Heat’s effect on cotton
We all thought June was unbearably hot. Well, there has been no letup in July. As mentioned earlier, we’ve seen record setting temperatures and heat indices reaching dangerous levels. The old adage “cotton is a hot weather plant” is certainly being tested. This is true in part, but only when there is adequate soil moisture.
There is nothing we can do to alter air temperatures in a field, aside from looking at it from the air-conditioned cab of a tractor or truck. Even so, I would like to discuss how cotton plants try to cope with this heat without getting too deep into the science of plant physiology. This, in turn, may illustrate the impact these conditions can have on yield and quality.
Air temperature is not the only factor at play here, soil moisture, relative humidity, sunlight and wind all interact. The temperature of most concern is that of the plant tissue itself. The plant tries to keep this between 74 and 90 degrees, which is the optimum range for growth and photosynthesis.
It does this through evaporative cooling, a similar process used by humans when sweating. Water evaporates from the leaf when sunlight and air temperatures heat up the plant. Over 99 percent of the water taken up by the plant is used toward evaporative cooling. You may be surprised to know the evaporative cooling in one acre of July cotton provides the same cooling as 75 to 100 typical home air conditioners.
Therefore, damage to yield and quality is most likely to occur when this cooling process is restricted. Dry soils, of course, can restrict the flow of water to the plant and out the leaves. Or if the movement of water is hindered, such as in sandy soils or where root damage has occurred. High relative humidity, as we’ve experienced lately, is restrictive in that air already saturated can only hold so much. Intense sunlight increases plant tissue temperature in cotton more so than other plants for cotton leaves are good absorbers of solar radiation.
Finally, this cooling process naturally shuts down after sunset. Therefore, high nighttime temperatures will increase the plant’s temperature greatly reducing stored energy needed to fill out bolls. Fortunately, despite the extremely hot days we find temperatures retreating into the 70’s at night. Anything below 80 degrees allows the plant to build up its supply of carbohydrates.
Quality, on the other hand, is much less sensitive to high temperatures than yield. The reason being the plant will only retain enough bolls that it has carbohydrates supplies to mature. High micronaire would be the biggest concern as thicker rings of cellulose are deposited daily under these conditions. Also, the aborted bolls are most often the youngest which if held to maturity would have been those with lower micronaire.
So, I say all this to say there is little we can do except manage soil water relations the best we can. Dry land grower’s options are certainly more limited. However, restrict the use of PGR’s under droughty conditions. Avoid foliar fertilizers as plant carbohydrates are necessary to breakdown these materials for use. If irrigating, consider more frequent light applications.
Market action of the past few weeks has generated more excitement than we’ve seen in over two years. Trading between 61 and 64 cents for what has seemed like an eternity; the cotton market got wind of some improving fundamental news and began its advance shortly after the Fourth of July. In this short time, prices have advanced over 850 points threatening 75 cent closing Friday at 72.68 down 160 points on the week.
Last week’s selloff had more to do with outside factors, most notably a strengthening dollar, which took its toll on all commodities. A slight correction in the market would actually be looked upon as healthy, considering the pace of the recent advance. If this is the extent of it, we’ll take it.
The positive here, and why we think this market still has some momentum, is the fact it is being driven now more by improving fundamental news rather than technical indicators. Fund money has helped fan the flames as they were quick to increase their long position, but they were brought in on the news of increased demand for cotton.
There have been several indicators over the past few weeks reflecting renewed consumption for cotton fiber. Weekly export sales reports have been very good with cancelations for this time of year at unusually low levels.
Most promising was last week’s report showing combined export sales of over 268,000 bales up nearly 40 percent from the prior week when most thought sales would be sluggish considering these higher prices. Another positive indicator came from the USDA wherein their supply/demand report for July lowered world ending stocks by 9 million bales.
This sizeable reduction was the result of increased Chinese consumption and fewer planted acres in competing countries. We already had a glimpse as to Chinese demand by the brisk sales in their auction of cotton reserves.
Once feared by the industry for the havoc it might create in the markets, this auction, in reality, has been conducted quite orderly. Ongoing for weeks now with only a few weeks remaining, unless extended, Chinese traders have been buying 75,000 bales a day on an average. One must always question news from China, but if this signifies real demand and not a falsely created one, its further indication world cotton fundamentals are improving.
In addition, it’s the first step in depleting the massive Chinese cotton reserves, which have hung around the neck of the cotton market like an anvil since 2012.
History tells us bull markets most often are initiated and sustained by increases in consumption. If this current demand has legs and is not simply a short term bump created by merchant covering, we could see prices trading in a new range between 70 to 80 cents.
If imminent production problems in countries such as India, Pakistan, and China do actually occur, further support will be given to this market. In any case, this latest price rally has given U.S. producers a gift in the opportunity to book cotton at prices above 70 cents.
Though its mid-season and yields are still uncertain, producers would be wise to price at least a third of your crop at these levels and hope you’re wrong and prices go higher.
At Choice Cotton, we have several forward contracts available to you at this time, all with a generous new crop basis and premiums for quality. Please call our office at 334-365-3369 to discuss these and other marketing services we have to offer. Also, to those who have contracted with us, we will be sending you a market commentary similar to this on a timely basis throughout the season. It is our hope this information will aid you in pricing your crop. But please remember we are available by phone at any time to discuss market conditions.