"Yes, the December 2000 contract can fall below 50"cents"/lb."
Cotton producers don't like that comment from O.A. Cleveland, Mississippi State University cotton marketing specialist in Starkville. But Don Ethridge, head of ag economics at Texas Tech University in Lubbock, also sees a potential for lower cotton prices.
With the bleak forecast for the white fiber, Cleveland and Ethridge both encourage producers not to let a reasonable price rally slip by if it occurs.
When December 2000 futures approach 60"cents"/lb during weather rallies or other market spikes, they recommend that growers lock in part of this year's crop.
"Hopefully, December 2000 prices can rally back to the 58-60"cents" range," says Cleveland. "That is our goal to begin pricing the 2000 crop.
"Sixty to 65"cents" should create some interest for marketing new-crop cotton," says Ethridge, adding that there's little incentive for growers to sell cotton much below those futures price levels.
With a Texas basis that has been running 10"cents" under futures, anything below 60"cents" on the New York Cotton Exchange futures contract translates to a cash price at near the 52"cents" government loan rate. "That's the floor, so futures under 60"cents" likely isn't a wise pricing strategy in most cases," says Ethridge.
The first sign of a rally will probably be a rebound of May or July futures prices to the 58-60"cents" level, says Cleveland. That will be weather-caused, or result from a jump in foreign demand for U.S. cotton.
He suggests that growers who still have '99 cotton to market - or who wish to take additional money out of the market - should consider buying May or July call options, which have been low in price during the weak market.
"Growers should remember that without a May-July rally ... the new-crop December (futures price) has little chance of rallying," he says.
Domestic cotton production for 1999 is estimated at 16.5 million bales (480-lb bales), up 19% from the 1998 amount. Yield is expected to average 592 lbs/acre, down 33 lbs from the '98 average. World production is at 19.3 million tons, a 3.5% increase. Consumption is estimated just below production, and stocks are expected to increase by 50,000 tons to reach 9.7 million tons by July.
"Cotton futures will continue to follow the international cotton situation, not the U.S. situation," says Cleveland. "Should the international business expand, the market will move marginally higher."
Ethridge sees little sign of a quick recovery of depressed prices that hung below 40"cents" on the spot market in Texas through harvest. "The outlook is for no substantial long-term improvement well into the next (2000-2001) crop year," he says. "We have to see the world market increase before we'll see U.S. spot prices rebound."
Ethridge adds that, if China becomes a major player in the proposed World Trade Organization talks, there are potential pitfalls for the U.S. cotton industry. "I feel that China will flood markets with polyester-cotton blends," he says. "They will increase their fiber exports without having to buy as much cotton."
Despite the poor horizon for cotton, just-as-weak grain markets may see growers maintain or even expand cotton acres.
"Many still see cotton as a crop with better profit potential," says Ethridge. "Unfortunately, all commodity prices are down. We're going to have to see an increase in demand (for all crops) to get out of this."