December Crop Report Encouraging For Cotton
Don Shurley
Professor/Economist- Cotton
Department of Agricultural and Applied Economics
University of Georgia
In it's December supply and demand numbers, USDA trimmed the expected size of the 2002 US cotton crop to 17.38 million bales- down 440,000 bales from the November estimate. Foreign production was also dropped by 280,000 bales. So the total world estimate now stands at 87.41 million bales- down 720,000 bales. World ending stocks were projected at 38.84 million bales. USDA's December numbers also continue to show strong world demand for cotton
The stage appears set for at least some recovery in cotton prices. In
fact, prices are already well above year-ago levels. The December USDA
numbers simply continue to confirm that supply and demand are tightening
just a bit further. Prices, however, are still low by historical standards
and well below the cost of production for most producers even if adding
LDP's or marketing loan gains.
For at least the short-term foreseeable future, the market should have
decent support. The one major concern is whether or not this price strength
will cause some erosion in demand (exports particularly). If that happens,
it will keep a lid on much further price increase.
But the facts cannot be ignored-- 2002 world production is now the lowest
level since 1998, world cotton use is at an all time record level, and
stocks are projected to be the lowest since 1995. So there should be little
threat of lower prices until maybe mid-2003 when much more is known about
2003 US and foreign plantings and the outlook for the demand side.
Producers are encouraged to take advantage of price rallies as they occur. Be especially alert for how the A-Index (world price) and US prices change in relation to each other. Good opportunities to move cotton will be when US prices rally and before the weekly A-Index, AWP, and LDP or marketing loan gain have an opportunity to also adjust.
Back to Cotton Outlook