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Cotton planting witness a sharp drop

Jun '07
December cotton futures climbed to its life of contract high on Friday in response to the USDA June planted acreage report. The report noted a sharp drop in grower plantings compared to the March planting intentions report.

The cotton bulls are suggesting the report implies higher prices, but the bears are using the report to justify their contention that the current price rise is drawing to an end. In reality, I think Mother Nature will have the major say in the coming months. Longer term, I like the bullish side of the market, but only for three or four more cents.

USDA's June planted acreage report for the U.S., released today, shows 2007 all cotton plantings were estimated at 11.1 million acres, 28 percent or 4.22 million acres below last year's 15.27 million planted acres.

More importantly, the estimated 11.1 million planted acres is 1.1 million acres below the 90-day-old March planting intentions report. This is clear that the rise in grain prices during the spring, coupled with excessive rains in Texas, added to the switch from cotton to more corn plantings.

Principal changes from the March intentions report included significant reductions in Texas, down 710,000 acres, the Midsouth, down 180,000 acres and the Southeast, down 165,000 acres. Georgia acreage was down 100,000; Alabama down 50,000; North Carolina down 30,000; Mississippi down 60,000 acres, Tennessee down 80,000 and Louisiana down 40,000.

The smaller than expected plantings excite the bulls as the projection for U.S. cotton production, using trend yields and abandonment levels, projects 2007 production at only about 17 million bales. However, yields could be at record levels for many areas since cotton was planted on the very best and productive soils while the increase in grain and oilseed plantings was on the less productive soils-and generally on non-irrigated acreage.

Nevertheless, even with record yields the U.S. will see total production below 18 million bales. Likely, the best Mother Nature could provide would be near 17.8 million bales. I expect to see USDA's production estimate in its July 12 supply demand report to be 17.3 to 17.5 million bales.

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