Shurley on Cotton: March Upward May Continue but Is Volatile

    Cotton harvest. ©Debra L Ferguson

    December futures peaked to close at almost $1.12 on October 7th. This was followed by 4 consecutive lower days to just under $1.04 on October 13. Yesterday (Oct 14), we had a big rally up 324 points for the day and back at just over $1.07. DEC was up earlier today, was down most of the day, but looks like it will close up moderately for the day.

    Some of the shine on the October 7th high has gone, but price is still very strong and growers may want to consider taking advantage a little or a lot—depending on the degree to which you are already priced and how comfortable you are with knowing what size crop you have.

    Could price go back higher? Yes. Could prices weaken? Yes. But I’m not sure it’s worth risking it in your cash position with price already as high as it is. Maybe think about pocketing the cash and taking your risk on paper with Options.

    This weeks USDA supply/demand numbers contained good and bad as far as impacting price direction goes. In summary:

    • The projected 2021 US crop was lowered ½ million bales; due to a reduction in the expected US average yield.
    • Projected US exports for the 2021 crop year were unchanged at 15.5 million bales
    • World production for 2021 was raised 700,000 bales; India was lowered was China was unchanged from the Sept estimate
    • World Use/demand was lowered 740,000 bales; a 1 million bales decline in China but increases for Turkey and Pakistan.

    This week’s export report (released today, for the previous week ending Oct 7) was weak and disappointing. But, at the end of the day, looks like the market shook off the disappointing numbers.

    For the week ending October 7, sales were only 158,000 bales and shipments were only 109,000 bales. Sales and shipment to China destinations were almost nonexistent. Biggest sales destinations were to Turkey and Mexico.

    With this week’s monthly USDA numbers showing a drop in Use from the September estimate and now with a weak export report, these are not what the market wanted to see but it’s encouraging that prices were up for the day. The market also has to factor in the lowered outlook for the US crop.

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    It’s very early but is it time to begin thinking about pricing the 2022 crop? Dec22 is currently just over 90 cents. After seeing this year’s crop go from 80 cents to, so far, almost $1.12 and many farmers probably began their pricing on the lower end of that—it’s tempting to wait so you don’t get disappointed by pricing early again. Can’t blame the grower for this thinking.

    But Dec22 is already 20 cents above where Dec21 was this time last year. To realize another 40% increase (equivalent to this year’s road from 80 to 112), would put us at $1.26.

    Because it is so early, anything seems possible. Who’s to say 2022 couldn’t be another 2021? We also know that costs are high and continue to increase and the farmer needs every bit of high price possible. Not capturing at least some of the highest possible price on at least some portion of the crop could be a financial hardship.

    So, the grower has to decide when to start, at what price, and how to do it. How much price risk are you willing to take? There are no easy or perfect answers.

    Some growers have already priced a little of next years expected production at 90 cents. These growers, and more will likely join them, will price more when they have an opportunity at 95.

    If 2022 crop price stays very good into winter and spring, it seems likely that acres here and abroad will increase next year. If that is realized and higher production also occurs, demand/Use will need to continue to be strong and grow (and the result being good US exports) to keep prices where we want them to be and where they need to be for the grower.

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