Cotton Market May Become Jittery
Don Shurley
Professor/Economist- Cotton
Department of Agricultural and Applied Economics
University of Georgia
As the US looks ahead to a possible 18 million bale crop this year, the
world cotton market is beginning to show signs of the "jitters". While
the price outlook is still mostly up rather than down, producers need
to be watchful and take good opportunities for price protection when available.
2003 cotton prices (December futures) closed at a new high of almost 63 cents per pound on April 21 and have since fallen back to closer to 60 cents. The market for the time being appears very comfortable around 60 cents. Over the next few weeks and months, prices could work in the 58 to 64 cent area.
Believe it or not, it is being debated that SARS may have an impact on the 2003-04 market. Why? Well, one of the forces behind the current positive price outlook for cotton is a strong uptrend in world demand for cotton and, specifically, tremendous growth in foreign textile mill use of cotton- especially China. If the SARS outbreak in China acts to depress Chinese cotton consumption and mill business, that could act to destabilize the world cotton industry.Otherwise, 2003 cotton prices will also keep a close eye on US plantings and growing conditions. The Southeast appears mostly in good shape as planting season gears up in full force but parts of Texas have been dry and the California crop is off to a slow start.
Total world cotton acreage (and production) is expected to be up this year in response to a stronger A-Index. But for now, the market appears to be more sensitive to the demand side. Producers wishing to take action to reduce risk might consider contracting a portion of the crop at 60 cents or better and follow up with Call Options later if the market shows potential for further increase.
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