Don Shurley

Professor/Economist- Cotton
Department of Agricultural and Applied Economics
University of Georgia

Prices for the 2003 cotton crop have taken a bullish tone over the past several weeks- increasing 7 to 8 cents per pound over the course of about a week. Now, the major task ahead is getting, what by most accounts is a good Georgia crop, out of the field and to the gin without yield and quality losses. For the first time in a long time, Georgia cotton producers may get to enjoy both a good crop and a good price.

In it's September reports, USDA trimmed the size of the worldwide crop to 93.4 million bales- 5.5 million bales above last year but 2 million bales less than the August estimate. The Chinese crop estimate was cut by 1.5 million bales. Given the growth in China's textile mill industry in recent years, this cut in their own production was enough to send the market upward.

The cut in expected world production combined with continued strong demand by foreign mills will, if realized, send world ending stocks at the end of the 2003-2004 marketing year to the lowest level since 1994. The US crop is estimated at just under 17 million bales- only about 300,000 bales less than last year. Exports are expected to be a record 12 million bales.

At present, 2003 crop prices (December futures) stand in the 65 to 66 cent area. As you might suspect, there has been talk of 70-cent cotton. But it is much too early for that. Is it possible? Yes, perhaps eventually. But it will be a slow, steady walk if it happens at all.

The market has already shown considerable uneasiness in the mid-60's with no willingness to break out of that comfort zone for now.Producers need to take advantage of the price increase we have seen. There is more risk on the downside right now than the upside. Put Options or Contract plus Call Option would provide price protection while keeping the upside open. Either seems better than the risk of doing nothing with prices at these levels.