The 2001 US cotton crop is now estimated by USDA to potentially be 19.2 million bales. If realized, this would be the largest crop since 1994. The crop may actually be larger than this. The USDA estimate is based on state average yields for the previous 10 years. Crop conditions have deteriorated somewhat in recent weeks but the crop still has plenty of opportunity to do better than the 10-year average.

At present the market is reacting primarily to weather and export news. However, any concerns about crop problems within the US have not been enough to offset weak demand and prospects for favorable crops overseas. Prices have been unable to muster any strength and any attempt at a rally has been short lived. Recently, 2001 crop prices (December futures) have been mostly in the 40.5 to 42.5 cent area.

Despite this years' low prices, exports of the 2000 crop fell to 6.6 million bales as a strong US dollar kept US exports relatively high priced and imports cheap. Exports of the 2001 crop are looking much better as there are already about 3 million bales forward sold. It is doubtful, however, that exports will reach USDA's projected 9 million bales unless China is a big buyer.

US demand appears to be irreversibly down the toilet and unless US and world crop size is cut significantly, prices will very likely remain in the 40's and could move lower. Very little of this year's crop has been committed to merchants and mills. A large share will likely end up in loan. If the LDP (POP) and harvest time is large (and it probably will be ), the least risky market strategy will likely be to take the POP, sell the cotton, and buy Options. Let someone else take the risk.

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