Master Marketer participants engaged in an ag market simulation game

Master Marketer participants engaged in an ag market simulation game.

COTTON SPIN: Playing around with your 2016 marketing plan

Weather market may be best option for 2016 cotton Planting decision is critical No crop options look particularly good

My outlook for 2016 cotton prices remains basically more of the same (for example, see http://bit.ly/21BFgOL). December 2016 ICE cotton futures are still tracking the same tired 60 cents to 67 cents range that the old crop contracts have been stuck in. 

There will likely be similar influences in 2016 as there have been this year: weak/moderate economic growth, aging foreign cotton stockpiles, likely low U.S. plantings, good soil moisture to start the season, and then a possible weather market. 

It is not too difficult to pencil out an ending stocks outcome for the 2016 crop that is similar to the 2015 crop — in other words, little fundamental reason for a higher or lower price range. The 2016 insurance price for cotton may yet again be set at a sub-profitable level below 70 cents. The possibility of a weather market during the summer of 2016 strikes me as the best chance for futures making a run at 70 cents, although it might be short lived.

So what then should growers do?

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IMPORTANT DECISION TIME

The first thing to consider is that the planting decision is the most important risk management/marketing decision that a grower can make.

The 2016 planting question is a difficult one, since feedgrain and wheat prices are not very good either. The notable sorghum prices have not re-appeared. Constraints from ag lenders may dictate what more growers end up planting in 2016.  Growers who plant cotton will have to be nimble to take advantage of any higher prices that result from weather-related surprises. 

Simply waiting until harvest may not work if speculative buying comes and goes on a weather market rally in mid/late summer. This suggests having a plan, perhaps cash forward contract or hedge some reliable share of expected production if there is a market rally prior to harvest.  There are different risks associated with those choices.

It helps if growers have intentional, written plans of action to sell or hedge some share of their planned production by a certain date or a certain price point. Like anything, it helps to practice this kind of planning and action. That is the reason that Texas A&M AgriLife Extension economists include hands-on market games in our marketing workshops. 

SIMULATION ACTIVITY

For example, the 2016 Master Marketer workshop in Abilene will feature a simulation activity focusing on production and marketing decisions for cotton, wheat, sorghum, and stocker cattle.  Growers will have the opportunity to make acreage allocation decisions, given cost of production information and break-even calculations. Then participants will be guided through a series of simulated seasonal time periods, using historical weather and market information. 

In each of these time periods, participants will face similar hedging and selling decisions that they will likely face in 2016. The market simulation activity will be led by me and Dr. Mark Welch. Our goal is to give participants a firmer plan of action about how to market their 2016 production.

This kind of hands-on learning is the best way to learn about futures and options. It is also a great way to develop a specific plan for 2016. All of the background, weather and market history, etc., will be chosen based on their possible relevance to the upcoming season. And while it’s just a game, participants will be competing for a cash prize. Consider it the first profits for the 2016 crop year — hopefully with many more happy returns.

The Master Marketer program in Abilene will involve 64 hours of intensive marketing education conducted over 8 weeks between January 19 and March 3, 2016.  For more information or questions related to the Abilene Master Marketer, please call 979-845-2604 or 979-845-8011 or e-mail [email protected]  You can register online, keyword search “Master Marketer.”

For additional thoughts on these and other cotton marketing topics, please visit my weekly on-line newsletter.

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