Cotton Market Cotton Market OutlookOutlookJohn R.C. Robinson John R.C. Robinson
Professor and Extension Professor and Extension Economist-Cotton MarketingEconomist-Cotton Marketing
Department of Agricultural Economics Texas AgriLife Extension Service
Texas A&M University College Station, Texas
Southern Outlook Conference Atlanta, GA September 23, 2009
● 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?
Discussion PointsDiscussion Points
Supply UncertaintySupply UncertaintyTexas 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 UncertaintySupply UncertaintyElsewhere, moisture is the issue, in a bad way…
30% to 40% of Arkansas’ cotton looks like this…
● 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?)
Supply UncertaintiesSupply 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
Demand UncertaintiesDemand Uncertainties
World Per Capita Cotton UseWorld Per Capita Cotton Use
0.006
0.007
0.008
0.009
0.01019
70/1
971
1971
/197
219
72/1
973
1973
/197
419
74/1
975
1975
/197
619
76/1
977
1977
/197
819
78/1
979
1979
/198
019
80/1
981
1981
/198
219
82/1
983
1983
/198
419
84/1
985
1985
/198
619
86/1
987
1987
/198
819
88/1
989
1989
/199
019
90/1
991
1991
/199
219
92/1
993
1993
/199
419
94/1
995
1995
/199
619
96/1
997
1997
/199
819
98/1
999
1999
/200
020
00/2
001
2001
/200
220
02/2
003
2003
/200
420
04/2
005
2005
/200
620
06/2
007
2007
/200
820
08/2
009
2009
/201
0
Marketing Year
LB
S.
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.
Monthly Nearby Futures Settlement Monthly Nearby Futures Settlement Price Vs. World Cotton Domestic UsePrice Vs. World Cotton Domestic Use
40
45
50
55
60
65
70
75
80A
04/0
5 O D F A JA
05/0
6 O D F A JA
06/0
7 O D F A JA
07/0
8 O D F A JA
08/0
9 O D F A JA
09/1
0
Marketing Year
Cem
ts/L
b.
100
105
110
115
120
125
130
135
Mil
lio
n 4
80 L
b.
Bal
es
Nearby Futures World Cotton Use
Supply/Demand Numbers For Supply/Demand Numbers For Old Crop and New Crop Cotton Old Crop and New Crop Cotton
Supply/Demand Numbers For Supply/Demand Numbers For Old Crop and New Crop Cotton Old Crop and New Crop Cotton
Sept. production/supply numberhas now been muddled by
recent weather events.
U.S. All Cotton Production, Percent U.S. All Cotton Production, Percent Change from August vs. JulyChange from August vs. July
-15.00%
-10.00%
-5.00%
0.00%
5.00%
10.00%
15.00%
20.00%
1998/9
9
1999/0
0
2000/0
1
2001/0
2
2002/0
3
2003/0
4
2004/0
5
2005/0
6
2006/0
7
2007/0
8
2008/0
9
August vs. July
Perc
en
t C
han
ge
U.S. All CottonPercent Change U.S. All Cotton
Percent Change
Mktg. Year August July % Mktg. Year August July %
1998/99 14.26 13.92 -2.38 2004/05 20.18 23.25 15.21
1999/00 18.30 16.97 -7.27 2005/06 21.29 23.89 12.21
2000/01 19.16 17.19 -10.28 2006/07 20.43 21.59 5.68
2001/02 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
Million 480 Lb. Bales
Calculation done by subtracting July minus August divided by August.
Supply/Demand Numbers For Supply/Demand Numbers For Old Crop and New Crop Cotton Old Crop and New Crop Cotton
U.S. exports are influenced by overall demand uncertainty as
well as likely exportable Surplus from India
U.S. Exports of All CottonU.S. Exports of All Cotton
0
100
200
300
400
5008
/6/0
98
/13
/09
8/2
0/0
98
/27
/09
9/3
/09
9/1
0/0
99
/17
/09
9/2
4/0
91
0/1
/09
10
/8/0
91
0/1
5/0
91
0/2
2/0
91
0/2
9/0
91
1/5
/09
11
/12
/09
11
/19
/09
11
/26
/09
12
/3/0
91
2/1
0/0
91
2/1
7/0
91
2/2
4/0
91
2/3
1/0
91
/7/1
01
/14
/10
1/2
1/1
01
/28
/10
2/4
/10
2/1
1/1
02
/18
/10
2/2
5/1
03
/4/1
03
/11
/10
3/1
8/1
03
/25
/10
4/1
/10
4/8
/10
4/1
5/1
04
/22
/10
4/2
9/1
05
/6/1
05
/13
/10
5/2
0/1
05
/27
/10
6/3
/10
6/1
0/1
06
/17
/10
6/2
4/1
07
/1/1
07
/8/1
07
/15
/10
7/2
2/1
07
/29
/10
Weekly
Th
ou
san
d S
tati
stic
al B
ales
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.
Supply/Demand Numbers For Supply/Demand Numbers For Old Crop and New Crop Cotton 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 The 55-65 trading range is implied by the historical pattern of Dec. futures when ending stocks didn’t pattern of Dec. futures when ending stocks didn’t change much from year to year. change much from year to year. (This involved data from a time (This involved data from a time when cotton prices were perhaps more influenced by the supply/demand of cotton.)when cotton prices were perhaps more influenced by the supply/demand of cotton.)
40
50
60
70
80
90
A S O N D J F M A M J J A S O N D
Cen
ts/L
b.
(mo
nth
ly)
40
50
60
70
80
90
Cen
ts/L
b.
(dai
ly)
Settlement Price (daily)
Stable Carryover
(’95, ’97, ’98, ’99) (monthly)
……However, if ending stocks are smaller than the However, if ending stocks are smaller than the previous year (i.e., if USDA revises forecasted previous year (i.e., if USDA revises forecasted production downward), expect production downward), expect level-slightly higherlevel-slightly higher pricesprices for harvest-time futures. for harvest-time futures.
40
50
60
70
80
90
A S O N D J F M A M J J A S O N D
Cen
ts/L
b.
(mo
nth
ly)
40
50
60
70
80
90
Cen
ts/L
b.
(dai
ly)
Settlement Price (daily)
S = Smaller Carryover (’89, ’90, ’93, ’94, ’02, ‘03) (monthly)
● Maybe the historical, seasonal patterns are less relevant
● The cotton market also continues to be influenced by the supply and demand of investment money.
On the other hand…On the other hand…
Net Positions ofNet Positions of Index FundsIndex Funds andand HedgeHedge FundsFunds vs.vs. Nearby Futures PricesNearby Futures Prices
-60,000
-40,000
-20,000
0
20,000
40,000
60,000
80,000
100,000
120,000
140,0001/
24/0
62/
21/0
63/
21/0
64/
18/0
65/
16/0
66/
13/0
67/
11/0
68/
8/06
9/5/
0610
/3/0
610
/31/
0611
/28/
0612
/26/
061/
23/0
72/
20/0
73/
20/0
74/
17/0
75/
15/0
76/
12/0
77/
10/0
78/
7/07
9/4/
0710
/2/0
710
/30/
0711
/27/
0712
/25/
071/
22/0
82/
19/0
83/
18/0
84/
15/0
85/
13/0
86/
10/0
87/
8/08
8/5/
089/
2/08
9/30
/08
10/2
8/08
11/2
5/08
12/2
2/08
1/20
/09
2/17
/09
3/17
/09
4/14
/09
5/12
/09
6/9/
097/
7/09
8/4/
099/
1/09
Weekly
No
. of
Co
ntr
ac
ts
30
40
50
60
70
80
90
100
Ce
nts
/Lb
.
Index Funds Hedge Funds Nearby Futures
The fund sector has recently been behind the summer and September rallies in cotton
prices, but not enough to break the mid-60s.
Source: Commitment of Traders Supplemental Report (Futures and Options)
Technically Constrained between 57 & 65Technically 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).
World forecasted stocks-to-use was World forecasted stocks-to-use was lowered in September report – potentially lowered in September report – potentially
stable A-Index in the mid 60 cent rangestable A-Index in the mid 60 cent range
0102030405060708090
Au
g-9
9Ja
n-0
0
Au
g-0
0
Jan
-01
Au
g-0
1Ja
n-0
2
Au
g-0
2Ja
n-0
3
Au
g-0
3Ja
n-0
4
Au
g-0
4Ja
n-0
5
Au
g-0
5
Jan
-06
Au
g-0
6Ja
n-0
7
Au
g-0
7Ja
n-0
8
Au
g-0
8
Jan
-09
Sep
-09
Rat
io
0102030405060708090
Pri
ce
A-Index
Monthly Forecasted World Stks-to-Use
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
9/2
5/09
Daily
20
30
40
50
60
70
80
90
100
Cen
ts/L
b.Nearby Futures
AWP
“A” Index
Loan Rate (52¢)
““Loan Economics” may be in play for Loan Economics” may be in play for 2009/10 marketing year.2009/10 marketing year.
“A” Index of World Prices (as of 9/25/09) 65.22 Adjustment to US location and grade -16.37 Adjusted World Price (AWP)
48.85 Loan Deficiency Payment (=Loan-AWP) 3.15
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
2010 Thoughts2010 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.
● 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.
2010 Thoughts2010 Thoughts
World Cotton Production and World Cotton Production and Consumption vs. Harvested AcresConsumption vs. Harvested Acres
85
90
95
100
105
110
115
120
12520
00/0
1
2001
/02
2002
/03
2003
/04
2004
/05
2005
/06
2006
/07
2007
/08
2008
/09
2009
/10
Marketing Year
Mill
ion
480
Lb
. Bal
es
65
70
75
80
85
90
Mill
ion
Acr
es
Production Consumption Harvested Acres
With economic recovery, 2010/11 world consumption may climb back towards 120M bales.
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.
World Cotton Harvested Acres vs. World Cotton Harvested Acres vs. Nearby Futures Settlement PriceNearby Futures Settlement Price
30
35
40
45
50
55
60
65
7020
00/0
1
2001
/02
2002
/03
2003
/04
2004
/05
2005
/06
2006
/07
2007
/08
2008
/09
2009
/10
Marketing Year
Cen
ts/L
b.
65
70
75
80
85
90
Mil
lio
n A
cres
Nearby Futures Harvested Acres
•Will 2009/10 look like 2003/04?•Will Dec10 max out in lower 70s?
?
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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 [email protected]
The Cotton Marketing Planner Newsletter focuses on 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 ExpectationsA 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 Outlook2009/10 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.