Cotton Prices For 2003-2004 Become A Bit More Challenging

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

Prices for the 2003 cotton crop (December futures prices) have recently taken on a somewhat more dismal tone. This may present challenges in terms of marketing the crop. December futures peaked at 62 to 63 cents per pound back in April and again in early July but then sank to about 55-56 cents in mid-August. Currently, prices have staged a little mini-rally to the 57-58 cent area. So perhaps the outlook is not as optimistic as once thought and the question now becomes what to do about it. Despite the recent downturn, the crop is still weather sensitive as we begin to gear up for harvest and world supply/demand numbers are still on the bullish side.

In it's August reports, USDA pegged this years US crop at 17.1 million bales- not a large crop by any measure and actually 100,000 bales less than last year. So why weaker prices? US exports are projected to be about the same as last year but US mill use is expected to fall 700,000 short of last year and would be a record low 6.6 million bales. Further contributing to the weakness, foreign production is forecast to rebound. Foreign production is expected to increase by about 7 ½ million bales from last year with most of this increase coming from China. World use of cotton is expected to increase by only 1.4 million bales, however, so ending stocks are expected to increase. So, taken all together, this has weaken the market somewhat.

Should US and world prices remain weak or even decrease further into harvest time, producers can take consolation in the fact that it will likely result in a larger than otherwise Counter Cyclical Payment on the '03 crop and LDP's should also be higher.

The outlook is not altogether without hope, however. For the near term, futures prices are likely to range between 53 and 60 cents per pound. Longer term, the outlook will depend on the final US crop and whether or not the US can maintain high exports in the face of a 7 ½ million bale rebound in foreign production. Prices near 60 cents and better are still possible and rallies to this level will be good sell opportunities.