Upbeat cotton market guides at higher price potential in 2006-07

10 Feb '06

3 min read

According to a Texas Cooperative Extension economist, the general tone of the cotton market is bullish, so producers and marketers may see more upside price potential in 2006-2007 than this year.

"About two-thirds of our potential market demand/use is in exports, which now outweigh domestic cotton use," Dr Jackie Smith, Extension economist based at Lubbock, told producers attending the recent Southern Mesa Agricultural Conference.

"The world stocks-to-use ratio right now is around 44.1 percent, but stocks-to-use ratio projections for '06-07 are now at 35.9 percent," Smith said. "This means world ending stocks should drop a little next year."

"Here in the US, our stocks-to-use ratio stands at 30.8 percent. That is projected to decline to about 25.1 percent in '06-07."

Smith said total U.S. domestic cotton use is also projected to drop slightly in '06-07, based on expectations for less cotton production. US production for '06-07 is projected at 20.3 million bales, compared to 23 million bales for 2005-2006.

Those 20.3 million bales are based on a planting estimate of 14.4 million acres and a projected yield of 750 pounds per acre from an estimated 13 million harvested acres.

"Market fundamentals simply don't support higher world A-index prices before 2006-2007," Smith said. "Remember that when the stocks-to-use ratio goes over 40 percent, prices tend to trend downward."

"December '06 futures prices may be the best indicator of where prices are headed. A December '06 futures price of 65 cents could add to world acreage and push fall prices down. As a result, we could see futures prices slide into the 40-cents-per-pound range."

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