Cleveland on Cotton: Demand, Production Concerns Breath New Life Into Contracts

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Finally, demand and concerns surrounding world cotton crop potential pulled December cotton futures to new life of contract highs and to the 88-cent level. The price objective is 93 cents based on fundamentals as known today. However, the most probable set of demand and production scenarios projects a higher trading range by late summer.

Likely, the market will reach a trading range between 95 and 105 cents, but that most probably will wait until the late July-August/September period. Hopefully, demand will be the principal road to higher prices as such a price increase can occur without impacting potential inflation (i.e., a demand pull to higher prices).

Price inflation is prevalent in the economy, but the long bond market has not demonstrated any nervousness. Thus, the market is telling us not to worry about inflation, at least for now. We have been 50 percent sold on new crop since 85 cents and will hold further pricing until the market moves closer to 95 cents.

Yes, we all want to see prices run higher, and they will, but it is time to do some pricing…growers and mills alike, especially if none has been priced.

Texas was finally blessed with moisture, but an estimated 20-25% percent of the drought stressed area failed to receive adequate moisture. Further, excessive rains plagued much of the area.

Moreover, there was only a limited area that received soaking rains that allowed any recharge of the already drought stressed subsoil. Thus, it is expected that yield potential will be lowered. However, that assessment will not be known until July.

The Texas Plains crop is left to struggle and hope for very timely moisture during the upcoming dry season. The moisture was certainly net beneficial, but much of the region will be drought plagued in two weeks without additional rainfall.

Further, over 30% of the Midsouth received flooding rains that left 300,000 to 600,000 acres of cotton under water. It is expected that it will be at least two weeks before any determination of a summary of prevented plantings, lost acreage and the impact of the flood will be known. Yet, it was known that some acreage was a total loss.

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Highlighting USDA’ June supply demand report, world production was lowered, world consumption was increased, and world carryover was lowered. The story being told by the data confirms the extreme tightness in available supplies of cotton and is the principal reason cotton prices are moving higher.

U.S. projections for 2021/22 noted a 100,000-bale increase in exports over last month, up to 14.8 million bales. U.S. 2021/22 production was unchanged from last month and will likely remain unchanged until the August crop report is released. Planted acreage will be adjusted in the July WASDE report to reflect the June Plantings Report.

U.S. carryover was lowered to 2.9 million bales. As we suggested last week, carryover may eventually fall to 2.4-2.5 million bales, a very bullish scenario. World ending stocks in 2021/22 were lower, down almost 2 million bales to 89 million, and in our opinion will move as much as 5 million bales lower.

Consumption was increased 1.1 million bales. World cotton production was projected some 600,000 bales lower, based on a 750,000 bale reduction in Chinese production. Again, this month, USDA increased its projection of world trade 1.1 million bales, highlighting the extremely strong demand for cotton. This increase in world trade underpins the call for cotton to climb to one dollar a pound.

It is noted that cotton has climbed to a dollar a pound in Brazil and China. The U.S. is next. Thus, dollar cotton should be expected.




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