The release on March 30 of USDA's survey of 2007 planting intentions is anxiously awaited by the market. While not released until March 30, the survey was conducted during the first three days of March, thus the results will be as of grower decisions of March 1.
The consulting firm Informa released its estimate, placing plantings at 12.9 million acres. This is the same planted estimate I have used since late January. The National Cotton Council estimate of 13.2 million acres was based on grower intentions as of the first week in January. The estimates are for all cotton plantings, i.e., both upland and pima.
Certainly a reduction of this magnitude, 2.4 million acres, from last seasons €15.3 million planted acreage will bring down production. However, Mother Nature will make that call. To date, she has provided for very good moisture across the cottonbelt. Thus, even before the 2007 crop has been planted, it is off to a very good start. Yet, at this stage, that can change in couple of days. Just know that the new varieties of recent years, coupled with new introductions this year, have led to skyrocketing yields.
While the CCC loan battle is played out in many years between the market and the grower, the 2007 battle should have everyone talking. Typically, the market (via the merchants) wins the battle as growers sell their loan equities at a bit lower price than expected. Some growers hold out, but most can not accept the risk associated with carrying cotton. The 2007 season will likely be no different. The cost of forfeiture is just too great for most growers and tends to be a poor marketing tool. Thus, most growers will only get a pittance of the equity they traditionally receive.
The cotton will come out of the loan-at least all the market wants. The real question is whether the current 55 cent resistance level will draw out enough, or will the market have to rally to the top of the wider trading range-57 cents. More so than any other fundamental, Mother Nature will make that decision. With respect to new crop, growers should look to the market-buying put options-for protection against another bumper crop.
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