Cotton Price Improvement Possible But Will Be A Challenge

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

The 2002 US cotton crop now stands officially at less than 18 million bales. USDA estimated the crop at 17.8 million bales in November and the December report could trim the crop a bit further. Despite the drop in the expected production, projected 2002 crop ending stocks remained the same at 6.8 million bales because estimates for both US mill use and exports were dropped also.

Therein lies the challenge.

By all accounts US exports should do well. Foreign production is forecast to be down about 8 million bales from last year and foreign mill demand for is forecast at another record pace. In recent weeks, US cotton prices have flirted with the 50-cent area or better. 2003 crop futures are currently in the 55 to 56-cent range. The market has come a long way since the 30 to 40-cent prices of a year ago. But each time the market tries to sustain something in the 50's for very long it is beaten back.

There is very little fear or possibility that prices will return to the lows of a year ago. World production and stocks are much lower and the A-Index (world price) has strengthen significantly. But how high can we expected prices to reasonably go? The low 50's is probably the limit because it appears that is the point at which demand begins to slow. But the stage is set for 2003. Prices will depend on how foreign acreage and demand respond to the strengthening A-Index and how US cotton producers respond to the new farm bill with how much cotton they plant.