2008-09
Cotton Situation and Outlook
W. Don Shurley
Department of Agricultural and Applied Economics
University of Georgia- Tifton
2008 Southern Region Outlook Conference
September 22-24, 2008
Atlanta, Georgia
Market Situation
•
•
•
•
•
Exports of the 2007 crop were less than expectations.
This resulted in more old-crop to carry into the ’08
marketing year.
Demand side remains highly uncertain and merchants
are cautious on purchases (wide basis, but improved).
Spec/bullish mood has subsided.
Threats to the crop discounted, uncertain.
-- Drought and abandonment in Texas
-- Tropical storms/ hurricanes
Dec08 63 cents, Dec09 75 cents
Can Prices Go Higher (Rally Again)?
Yes (but, most likely into 2009)
• Crop situation deteriorates
• Improving export sales
• Another acreage decline in 2009
No
• Continued weak/uncertain export demand
• Crop meets or exceeds expectations
• Continued decline in spec mood
2008 Crop Price Prospects
Near-Term Appears Dismal, Later Into 2009 Possibly Better
Spec-Driven Rally
80-cent tease
Another tease
1000
16
900
14
800
700
12
600
10
500
8
400
6
300
Crop Year
Planted
Harvested
Yield
'0
7
'0
8E
'0
5
'0
6
0
'0
3
'0
4
0
'0
1
'0
2
100
99
'0
0
2
97
98
200
95
96
4
Lbs Per Acre
18
93
94
Million Acres
US Cotton Acres Planted and
Acres Down, But Yield Potential Good
Chronology of USDA US Supply/Demand Estimates
2006
Crop and Month of Estimate
2007
May08
Sep08
May08
10.83
10.83
9.39
10.49
10.49
8.39
2008
Jul08
9.25
8.10
Sep08
9.41
7.83
15.27
12.73
Jan08
10.83
10.49
814
871
879
879
830
830
849
Beginning Stocks
Production
Imports
TOTAL SUPPLY
6.07
21.59
0.02
27.68
9.48
19.03
0.02
28.53
9.48
19.21
0.02
28.71
9.48
19.21
0.01
28.70
9.90
14.50
0.02
24.42
10.20
14.00
0.02
24.22
9.90
13.85
0.02
23.76
Mill Use
Exports
TOTAL USE
4.94
13.01
17.95
4.60
16.00
20.60
4.60
14.20
18.80
4.60
13.65
18.25
4.30
14.50
18.80
4.40
14.50
18.90
4.40
14.50
18.90
9.48
7.90
9.90
9.90
5.60
5.30
4.90
Acres Planted
Acres Harvested
Yield Per Acre
Ending Stocks
Global Factors
•
US and World economic conditions
•
Demand side flat and highly uncertain
•
Chinese production and use (demand for imports)
•
Increased role of India in production and exports
US Cotton Production, Use, and Ending Stocks
2008 Starts Out With Large Stocks, Ends Tight
30
Million Bales
25
20
15
10
5
0
'00
'01
'02
'03
'04
'05
'06
Crop Year
Production
Off-Take
Ending Stocks
'07
08E
Foreign Production, Use, and Ending Stocks
Production “Flat” But Demand Has Also Slowed
140
120
Million Bales
100
80
60
40
20
0
'00
'01
'02
'03
'04
'05
'06
Crop Year
Production
Consumption
Ending Stocks
'07
'08E
China and Other Foreign Mill Use
China as Percent of All Foreign Mill Demand
140
42.2% 43.8%
120
44.4%
40.7%
37.8%
Million Bales
100
39.3% 30.3%
32.8%
34.9%
'02
'03
80
60
40
20
0
'00
'01
'04
'05
Crop Year
China
All Others
'06
'07
'08E
India Production, Use, and Exports
From Net Importer to Major Exporter
30
Million Bales
25
20
15
10
5
0
'00
'01
'02
'03
'04
'05
'06
Crop Year
Production
Mill Use
Exports
'07
'08E
2009 Crop Price Prospects
Current Price Not Competitive, Improvement Possible
Early Estimates of 2009 Net Returns
Non-Irrigated Production
Cotton
Corn
Soybeans
Peanuts
Expected Yield
700
85
30
2,700
Current Price Estimate
.71
5.75
10.50
500
Crop Income
497
489
315
675
Variable Costs
455
336
249
554
Net Return
42
153
66
121
.87
.74
.82
BE Cotton Price
Early Estimates of 2009 Net Returns
Irrigated Production
Cotton
Corn
Soybeans
Peanuts
1,100
185
55
3,700
Current Price Estimate
.71
5.75
10.50
500
Crop Income
781
1,064
578
925
Variable Costs
649
757
356
712
Net Return
132
307
222
213
.87
.79
.78
Expected Yield
BE Cotton Price
2009 Outlook
•
US acreage likely down again, same at best
•
Demand side likely to remain flat
•
Tighter stocks should improve prices
•
•
Producers must solve the marketing problem
-- wider basis
-- expensive Options premiums
Pessimistic– 70 cents or less
Optimistic-- 85 cents or higher
Questions?