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Cotton Market Brief Don Shurley |
June 26, 2002
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Cotton prices for the 2002 crop (December futures) are currently in the 47 to 48-cent range. New crop prices (December futures) have rallied about 11 cents since the most recent low in early May and about 13 cents from the lows of last fall. This is the rally that most observers have been anticipating. Now the questions are is it for real and how long it will last. USDA's current (June) estimate of the 2002 US crop is 17.8 million bales- 2.5 million bales below last year but still a sizeable crop relative to carry-in stocks and expected demand. What has fueled the rally is anticipation by some that the US crop could be closer to only 17 million bales or slightly less. Also fueling the rally, there have been reports of increasing cotton consumption and lower stocks in China, weather related problems in China and India, and what appears to be increased buying activity by US mills. With the recent rally, the market certainly is at a crossroads. Should a sharply smaller US crop materialize, we could see prices in the 50's. Whether prices could be sustained at that level would depend on how US and foreign demand responds to higher prices. Currently, it is estimated that the US will have 7.7 million bales of old crop (2001) cotton to carry in to the 2002 crop year. If the US crop is cut to 17 million bales or less and if total off-take (US mill use plus exports) can be maintained at 18 to 19 million bales, that would reduce 2002 ending stocks down to around 6 million bales or less. Still large by historical standards, but enough of a reduction to get us back to the 50's in terms of price. Because prices are still below the loan rate and because prices, if they go higher, could result in little LDP, producers may still wish to be cautious with fixed-price cash contracts. But, with prices now rallied into the high 40's and certainly if prices reach into the 50's, producers may now wish to seriously consider use of Options to lock in a floor. |
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