My holiday ritual for the last 30 years has been Christmas, New Years, and Beltwide. I think I’ve only missed two of the cotton conferences since 1985.
In the last decade, the Beltwide conferences have become a good opportunity for me to gather facts, research results, and market opinions about the upcoming crop and market prospects. This year’s meeting was no exception, although my market opinion was pretty much the same when I left as when I arrived.
First, I heard an excellent presentation by Cotton Incorporated CEO Berrye Worsham overviewing the demand outlook for cotton. He’s a fellow economist, and I appreciated his detailed and data-backed discussion about the drivers of cotton demand. Like my grower audiences, I spend most of my time thinking about production and supply side issues.
What struck me most in Berrye’s presentation was how unpredictable consumer preferences are in relation to fashion trends, and how this can shift demand for cotton. And I thought statistical modeling of supply was a challenge!
In summary, the general forecast of slow growth on the demand side is pretty much in keeping with my prior and continuing expectations for this market.
POLYESTER VS. COTTON
That being the case, I do not expect sustained higher cotton futures prices above 75 cents. While polyester prices have risen recently, they are still significantly lower than cotton prices.
That, plus slow economic growth and consumer preferences for non-cotton apparel, represent an upper limit on how far cotton prices can climb and hold. I heard that theme reflected in market outlook comments by the USDA, the National Cotton Council, and industry.
That doesn’t mean cotton prices can’t make some quick bursts into the upper 70s. Just like with the 2016 crop, upside volatility is possible during 2017 from speculative forces. The possibility of a drier season makes this weather market scenario at least as likely as it was during July-August 2016.
Further, as Economist O.A. Cleveland noted in a luncheon presentation, the current imbalances between fixed and unfixed on-call contracts between merchants and mills raise the possibility of excess futures buying as the old crop contracts mature. That suggests — just like in 2016 — that there may be some brief opportunities for growers to fix or hedge prices when futures are at or above the mid-70s.
BE READY TO ACT
That was my stump speech all during 2016, and it is still my main point this season. It implies that growers must be poised and ready for such opportunities.
Finally, there were some encouraging points made by the various market outlook speakers. First, U.S. acreage will doubtless be higher. I would guess that we see 11.5 million planted acres, based on anecdotal evidence of what I think Texas and Mid-South farmers will do. I heard a lot of similar opinions.
More acreage may not be the best thing for higher prices, but it is certainly good for upstream and downstream allied industry. Longer term, there is the hope that the great market distortion of the last six years (Chinese reserve stocks) will continue to be resolved, and that China will eventually resume its role as a source of demand for U.S. cotton exports.
For additional thoughts on these and other cotton marketing topics, please visit my weekly on-line newsletter at http://agrilife.org/cottonmarketing/