Cotton Market Entering Critical and Volatile Phase. The cotton market has made some wild swings in recent weeks- sending a caution flag to producers looking for early pricing opportunities on a portion of their expected 2000 crop. Not to fear, the market outlook remains "cautiously optimistic" that prices will regain momentum and move upward again.
December 2000 cotton futures dropped almost 3 cents per pound during the period of March 15-27. At least some of this decline can be attributed to significant rainfall across most of the cotton growing region from Texas to the Southeast. The prospect for improved planting moisture (perhaps to be accompanied by increased acres planted) was enough to send prices spiraling downward. Prices also appear to be wavering at what has been a general slowdown in the dramatic improvement of the world price or A-Index since roughly the first of the year.
In it's decline, however, the market has (at least for now) shown a willingness to ignore the longer range bullish conditions. Likely, the market will eventually recover it's losses of late March. Long range weather forecasts continue to call for drought during much of the growing season, world consumption is recovering, foreign stocks are declining, there is a general shortage of exportable good quality cotton, and the Australian crop (now being harvested) is being hit by rainfall and subsequent quality concerns.
The market (December futures) appears to have good support at the 59 to 60 cent level thus I would think that the downward slide has about run it's course. A rally could eventually carry prices to the 64 to 66 cent level.
My calculations suggest a scenario of about 63 to 65 cents combination of cash plus POP this fall. Subject to basis and grade risk, I would define this as the producers worst case scenario or the opportunity cost of doing nothing. The name of the game this season must be to offer downside protection while maintaining flexibility to benefit from price improvement. Should the market recover into planting season and early summer, a combination of fixed price contract plus Call Option or purchase of a Put Option would appear feasible.
USDA's Prospective Plantings report will be issued on March 31 and could show 15.5 to 16 million acres compared to 14.9 last year. If acreage is large, that will offset some of the weather concern. If weather cooperates, a crop of 19 million bales or more could be in the offering. At this juncture, it appears wise to not go into harvest completely unprotected. (Don Shurley)
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Corn Market Overview. New crop December 2000 corn futures continue to move higher on fears of a dry spring and forecasts of continued La Nina effects lingering into the early summer. The contract poked to a life-of-contract high of $2.64 in mid-March before settling back into a trading range in the high $2.50s. Chicago Board of Trade reports large speculators are holding net long positions and their purchases have fueled the rally. Added buying will continue the rally but if they change their opinion and head for the door, look for a test of the congestion area bounded on the bottom near $2.43.
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Soybean Market Situation. November soybean futures continue to march higher on drought fears in the Midwest. The market seems undaunted by the South American harvest now in full swing. Georgia soybean growers should use this rally as a forward pricing opportunity. Fundamental projections call for much lower prices this fall IF rains come to the Midwest. Beginning a forward pricing program now is a prudent market risk management strategy.
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Wheat Market Conditions. July wheat futures contracts have turned south heading into the home stretch of the winter wheat growing season. Timely rains arriving in many parts of the wheat areas of the high plains and that means adequate U.S. supplies along with large world stocks. Prices are likely to continue to trend lower into the harvest period. (George Shumaker)
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Dairy Outlook. U.S. milk production in February was up 8.2%. Most of the increase occurred in western states. This high production has resulted in the lowest prices seen in over twenty years. To offset these low prices, Wisconsin politicians have introduced a bill to extend dairy price supports two years and raise the support price to $12.50/cwt. They also want to target $500 million in new dairy market loss payments to smaller producers. Payments would be capped at $14,500 per farm (150 cows), and is targeted for Fiscal Year 2001, starting October 1, 2000.
Stopping the production increase will require three things: Low milk prices (already here). High feed costs (could happen with a drought). And a 2% jump in interest rates. Interest rates are increasing and for every 1% jump in interest net income falls 6 to 8%. (Bill Thomas)
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Funds from Washington Helping Farmers Pay Their Bills. The oft-quoted figure of $22.4 billion in farm program payments to U.S. farmers in 1999 was a record. While much of these monies are ad hoc appropriations, a large percentage are part of the 1996 farm bill which was designed to transition the government away from farm programs.
But the people have apparently decided that times of low farm commodity prices and unfavorable weather necessitate financial help to enable farmers to stay in business for future food and fiber production.
The Georgia Agricultural Statistics Service value of crops produced in Georgia in 1999 was $1,486 million, down 11% from 1998 and down 25% from 1997.
But assistance in the forms of market loss payments, disaster payments and market transition payments (and other programs) totaled nearly $400 million, with $360 million going primarily to crop farmers. These monies amounted to nearly 20% of the total income from crops.
A related program, crop insurance payments were almost an additional $140 million in 1999. But crop insurance came at a cost for premiums paid. Further, crop farmers had to experience a 35% loss in yields before being eligible for any disaster payments.
The logic for these payments is that farm commodity production can remain stable, and, in turn, gives stability to prices at the grocery. But farmers tell us they would prefer to get their income from the market place. The annual government appropriations process creates an atmosphere uncertainty equal to that of the weather and the market. But fortunately, these funds let farmers pay at least a portion of their bills. (Bill Givan)
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