Cotton growers to keep watch on process of farm bill discussions

24 Apr '07

3 min read

USDA will have to cut another 1.0 to 1.5 million bales off its current forecast. Let's not write off the USDA forecast as the last three shipments reports will likely push April export shipments above one million bales. In fact, through February U.S. shipments totaled only 4.4 million bales; the lowest annual seven month total is over five years and nearly a 45% decrease from the same period during the 2005-06 marketing year.

Another price barrier is the ever increasing level of certificated stocks, now climbing over 700,000 bales with the possibility that they will grow to 900,000 bales. That is essentially a ten-ton hat sitting on the top of market prices. The implication is that the best market for the certificated cotton is the futures market itself. The cotton has not been able to be sold in either the domestic or export market, thus the trade is attempting to sell it on the futures market-to deliver the cotton to someone else.

The possibility that U.S. exports could fall 1.0 to 1.5 million below the current USDA forecast would leave the US with more than two years domestic supply on hand-simply unheard of! Doubtless, there are other bearish signals in the market, with one being the expanded plantings in China and the rapid plant development that crop has made. However, the combination of poor consumption numbers and a record U.S. carryover of cotton stocks will keep the market bouncing along on its bottom.

Cotton growers must maintain a keen watch on the political process of the farm bill discussions. The tone being set is a new five year bill with little change in the commodity titles, but with slightly less budgeted funds. However, that could change overnight and, don't forget about the Iowa Senator that has pledged to effectively scuttle direct payments.

O.A. Cleveland

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