Southern Outlook Conference
Atlanta, GA
September 23, 2009
Cotton Market
Outlook
John R.C. Robinson
Professor and Extension
Economist-Cotton Marketing
Department of Agricultural Economics
Texas AgriLife Extension Service
Texas A&M University
College Station, Texas
Discussion Points
● Uncertain supplies and demand
● Summary of USDA’s September
Cotton supply/demand numbers
● Cotton futures price forecast:
– Dec09 between 55-65 cents
– Dec10 up to the lower 70s?
Supply Uncertainty
Texas started off very
dry, and has lost most
dryland production
below I-10.
The High Plains and
Rolling Plains were
spotty from a mix of
dry/wet weather, and
now are in a race for
heat units, i.e., moisture
is no longer the issue.
Last week’s cold snap
will probably foster low
micronaire. If it’s
widespread enough, it
could also reduce boll
weight and yield per
acre in NASS Districts
1N and 1S.
Supply Uncertainty
Elsewhere,
moisture is
the issue, in
a bad way…
30% to 40%
of Arkansas’
cotton looks
like this…
Supply Uncertainties
● USDA-NASS field survey for October
report at the end of the week (Oct 1)
● While they can make some subjective
adjustments, it will be months before
the measurable effect is known.
● Likely grade impacts; perhaps some
trimming of the U.S. prod’n number
(How much?)
Demand Uncertainties
● Lingering effects of recession on
consumer sentiment, purchases
● Cotton is tied more heavily to the
general economy
● When will the U.S. and world
economies resume growth?
● Meanwhile, USDA world
consumption is 113 million bales,
down from 121 million
0.010
0.009
0.006
1970/1971
1971/1972
1972/1973
1973/1974
1974/1975
1975/1976
1976/1977
1977/1978
1978/1979
1979/1980
1980/1981
1981/1982
1982/1983
1983/1984
1984/1985
1985/1986
1986/1987
1987/1988
1988/1989
1989/1990
1990/1991
1991/1992
1992/1993
1993/1994
1994/1995
1995/1996
1996/1997
1997/1998
1998/1999
1999/2000
2000/2001
2001/2002
2002/2003
2003/2004
2004/2005
2005/2006
2006/2007
2007/2008
2008/2009
2009/2010
LBS.
World Per Capita Cotton Use
Shaded bars represent historical periods of economic
recession. Cotton consumption tends to drop during
those periods due to fewer purchases of clothes, home
furnishings, etc.
0.008
0.007
Marketing Year
135
75
130
70
125
65
120
60
115
55
50
110
45
105
40
100
Marketing Year
Nearby Futures
World Cotton Use
Million 480 Lb. Bales
80
A04/05
O
D
F
A
J
A05/06
O
D
F
A
J
A06/07
O
D
F
A
J
A07/08
O
D
F
A
J
A08/09
O
D
F
A
J
A09/10
Cemts/Lb.
Monthly Nearby Futures Settlement
Price Vs. World Cotton Domestic Use
Supply/Demand Numbers For
Old Crop and New Crop Cotton
Supply/Demand Numbers For
Old Crop and New Crop Cotton
Sept. production/supply number
has now been muddled by
recent weather events.
U.S. All Cotton Production, Percent
Change from August vs. July
20.00%
Percent Change
15.00%
10.00%
5.00%
0.00%
-5.00%
-10.00%
August vs. July
Mktg. Year
Calculation done by
subtracting July minus
August divided by
August.
Percent
Change
U.S. All Cotton
Million 480 Lb. Bales
August
July
%
1998/99
14.26
13.92
-2.38
1999/00
18.30
16.97
2000/01
19.16
2001/02
Percent
Change
U.S. All Cotton
Mktg. Year
August
July
%
2004/05
20.18
23.25
15.21
-7.27
2005/06
21.29
23.89
12.21
17.19
-10.28
2006/07
20.43
21.59
5.68
20.00
20.30
1.50
2007/08
17.35
19.21
10.72
2002/03
18.44
17.21
-6.67
2008/09
13.77
12.82
-6.90
2003/04
17.10
18.26
6.78
2008/09
2007/08
2006/07
2005/06
2004/05
2003/04
2002/03
2001/02
2000/01
1999/00
1998/99
-15.00%
Supply/Demand Numbers For
Old Crop and New Crop Cotton
U.S. exports are influenced by
overall demand uncertainty as
well as likely exportable
Surplus from India
500
400
300
200
100
0
Export shipments this marketing year (blue line) started
off below the needed weekly shipments (red line) to
reach USDA’s forecasted target of 10.5 million bales of
U.S. exports in 2009/10. Export shipments grew in
August but dropped off since the recent rally in the
futures market.
At higher prices, India will also be selling some of it’s
reserve stock, perhaps crowding out U.S. exports.
8/6/09
8/13/09
8/20/09
8/27/09
9/3/09
9/10/09
9/17/09
9/24/09
10/1/09
10/8/09
10/15/09
10/22/09
10/29/09
11/5/09
11/12/09
11/19/09
11/26/09
12/3/09
12/10/09
12/17/09
12/24/09
12/31/09
1/7/10
1/14/10
1/21/10
1/28/10
2/4/10
2/11/10
2/18/10
2/25/10
3/4/10
3/11/10
3/18/10
3/25/10
4/1/10
4/8/10
4/15/10
4/22/10
4/29/10
5/6/10
5/13/10
5/20/10
5/27/10
6/3/10
6/10/10
6/17/10
6/24/10
7/1/10
7/8/10
7/15/10
7/22/10
7/29/10
Thousand Statistical Bales
U.S. Exports of All Cotton
Weekly
Supply/Demand Numbers For
Old Crop and New Crop Cotton
At
this point
the bottom line
suggests a moderate
reduction in ending stocks
over the previous marketing year.
This suggests Dec09 futures
between 55-65 based
on the supply and
demand of
cotton.
The 55-65 trading range is implied by the historical
pattern of Dec. futures when ending stocks didn’t
change much from year to year. (This involved data from a time
when cotton prices were perhaps more influenced by the supply/demand of cotton.)
90
90
80
(’95, ’97, ’98, ’99)
(monthly)
80
70
70
60
60
50
Settlement Price
(daily)
40
50
40
A S O N D J F M A M J J A S O N D
Cents/Lb. (daily)
Cents/Lb. (monthly)
Stable Carryover
…However, if ending stocks are smaller than the
previous year (i.e., if USDA revises forecasted
production downward), expect level-slightly higher
prices for harvest-time futures.
80
90
S = Smaller Carryover
(’89, ’90, ’93, ’94, ’02, ‘03)
(monthly)
80
70
70
60
60
50
50
Settlement Price
(daily)
40
40
A S O N D J F M AM J J A S O N D
Cents/Lb. (daily)
Cents/Lb. (monthly)
90
On the other hand…
● Maybe the historical, seasonal
patterns are less relevant
● The cotton market also continues to
be influenced by the supply and
demand of investment money.
Net Positions of Index Funds and Hedge
Funds vs. Nearby Futures Prices
90
80
80,000
60,000
70
40,000
20,000
60
0
-20,000
-40,000
-60,000
50
40
1/24/06
2/21/06
3/21/06
4/18/06
5/16/06
6/13/06
7/11/06
8/8/06
9/5/06
10/3/06
10/31/06
11/28/06
12/26/06
1/23/07
2/20/07
3/20/07
4/17/07
5/15/07
6/12/07
7/10/07
8/7/07
9/4/07
10/2/07
10/30/07
11/27/07
12/25/07
1/22/08
2/19/08
3/18/08
4/15/08
5/13/08
6/10/08
7/8/08
8/5/08
9/2/08
9/30/08
10/28/08
11/25/08
12/22/08
1/20/09
2/17/09
3/17/09
4/14/09
5/12/09
6/9/09
7/7/09
8/4/09
9/1/09
No. of Contracts
120,000
100,000
Weekly
Index Funds
Hedge Funds
Nearby Futures
Source: Commitment of Traders Supplemental Report (Futures and Options)
30
Cents/Lb.
140,000
The fund sector has recently been behind the
summer and September rallies in cotton 100
prices, but not enough to break the mid-60s.
Technically Constrained between 57 & 65
This rally has been attributed
to both speculative buying as
well as well as the merchants
being net long (more old crop
hedge liquidation than new
crop hedge selling).
Sep-09
Aug-08
Jan-09
Aug-07
Jan-08
Aug-06
Jan-07
Aug-05
Jan-06
Aug-04
Jan-05
Aug-03
Jan-04
Aug-02
Jan-03
Aug-01
Jan-02
Monthly Forecasted World Stks-to-Use
90
80
70
60
50
40
30
20
10
0
Price
A-Index
Aug-00
Jan-01
90
80
70
60
50
40
30
20
10
0
Aug-99
Jan-00
Ratio
World forecasted stocks-to-use was
lowered in September report – potentially
stable A-Index in the mid 60 cent range
Expect smaller but positive LDP’s this year due to world prices (green
line) averaging around 60 cents for the marketing year.
Note: with new crop loan placements, merchant hedge selling may
remove some of the current upside force on futures prices
Nearby Futures
AWP
1/5/04
2/2/04
3/1/04
4/1/04
5/3/04
6/1/04
7/1/04
8/2/04
9/1/04
10/1/04
11/1/04
12/1/04
1/3/05
2/1/05
3/1/05
4/1/05
5/2/05
6/1/05
7/1/05
8/1/05
9/1/05
10/3/05
11/1/05
12/1/05
1/3/06
2/1/06
3/1/06
4/3/06
5/1/06
6/1/06
7/3/06
8/1/06
9/1/06
10/2/06
11/1/06
12/1/06
1/3/07
2/1/07
3/1/07
4/2/07
5/1/07
6/1/07
7/2/07
8/1/07
9/4/07
10/1/07
11/1/07
12/3/07
1/2/08
2/1/08
3/3/08
4/1/08
5/1/08
6/2/08
7/1/08
8/1/08
9/2/08
10/1/08
11/3/08
12/1/08
1/2/09
2/2/09
3/2/09
4/1/09
5/1/09
6/1/09
7/1/09
8/3/09
9/25/09
Loan Rate
(52¢)
“A” Index
Daily
“A” Index of World Prices (as of 9/25/09)
Adjustment to US location and grade
Adjusted World Price (AWP)
Loan Deficiency Payment (=Loan-AWP)
65.22
-16.37
48.85
3.15
100
90
80
70
60
50
40
30
20
Cents/Lb.
“Loan Economics” may be in play for
2009/10 marketing year.
2010 Thoughts
Dec10 has traded over 70 cents several times
Reportedly there has been
aggressive forward pricing
of foreign growths at these
levels. Suggests increase in
cotton acres outside the U.S.
2010 Thoughts
● If Dec10 futures stay/return to 70
cents it may continue to buy foreign
acres (same thing happened in Fall
2003 – Spring 2004).
● Suggests 2010 may not be a rosy
“Wait til next year” kind of year.
● What may reinforce or diminish this
outlook is how much foreign stocks
are allowed to be drawn down.
World Cotton Production and
Consumption vs. Harvested Acres
120
115
110
105
90
85
80
100
95
The economic recovery scenario
implies the need for 7 – 8 million
more acres of cotton. Some of
this is likely being bought by
Dec10 futures above 70 cents.
90
85
75
70
Marketing Year
Production
Consum ption
Harvested Acres
2009/10
2008/09
2007/08
2006/07
2005/06
2004/05
2003/04
2002/03
2001/02
65
Million Acres
With economic
recovery, 2010/11
world consumption
may climb back
towards 120M bales.
2000/01
Million 480 Lb. Bales
125
World Cotton Harvested Acres vs.
Nearby Futures Settlement Price
90
?
55
50
85
80
45
40
75
•Will 2009/10 look like 2003/04?
•Will Dec10 max out in lower 70s?
35
30
70
Marketing Year
Nearby Futures
Harvested Acres
2009/10
2008/09
2007/08
2006/07
2005/06
2004/05
2003/04
2002/03
2001/02
65
2000/01
Cents/Lb.
65
60
Million Acres
70
The Cotton Marketing Planner
http://agecon2.tamu.edu/people/faculty/robinson-john/index.html
Welcome to John Robinson's Website on Cotton Marketing & Risk Management
Dr. John R.C. Robinson, Assoc. Professor and
Extension Economist-Cotton Marketing, Department of
Agricultural Economics, Texas AgriLife Extension Service,
Texas A&M University, 2124 TAMU, College Station, TX
77843-2124
Ph:_(979) 845-8011 jrcr@tamu.edu
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farm-level implementation of strategies for Texas
cotton growers to deal with yield and price risk.
Contact me to receive it weekly by e-mail.
Click to view what’s new on this page.
September 25, 2009
Cost Expectations
A marketing plan is a contingency plan of actions that a grower would take in various possible, but ultimately uncertain, market situations.
Developing and implementing a marketing plan begins with an updated estimate of expected production costs. Without accurate farm-specific
cost information, it is impossible to set meaningful pricing goals to cover your production costs. Texas cotton growers have a number of
available sources of information and programs to help them figure their production costs as accurately and completely as possible.
2009/10 Fundamentals and Outlook
2009/10 U.S. Supply/Demand Projections . The September WASDE report made some small, offsetting adjustments to the U.S. numbers.
Compared to their August numbers, USDA increased their forecasted production, first by raising the abandonment percentage from 14% to
over 15%, and then raising the yield on the remaining harvested acres. This is in line with observations in West Texas of poor dryland crops
and very good irrigated production prospects. The net effect was a couple hundred thousand more projected bales of production, which was
basically carried over into the projected exports. After tinkering with the "unaccounted" number, the bottom line was no change in expected
ending stocks for 2009/10. Hence, there was no supply/demand rationale for the market to react to this report, and it apparently did not. The
projected range of U.S. farm price remained unchanged at 49-59 cents.