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Cotton prices follow oilseed markets
16 Feb '08
4 min read
Price bubbles always burst, and the current one led by the grain/oilseed complex will be no exception. There are millions, hundreds of millions of acres in fact, in Europe, Central Asia, Africa, South America and even the U.S. (remember the CRP acres) that can be cropped if prices ratios demand that acreage. We do not have a land shortage.
However, we cannot bring the needed land area into production is the short term. Thus, the price bubble will only grow larger in the near term. The false demand for ethanol, created by U.S. legislation, started the higher price ball rolling.
However, it is the potential food shortage, created by record low vegetable oil stocks (in terms of per capita consumption) that will increase the life cycle of the current grain/oilseed led price bubble. Should the global vegetable oil crisis become more exaggerated, the price bubble for agricultural row crops could extend as far out as 2011-2012.
Too, because of the competition for land area, that bubble will also lead to higher cotton prices. Likely, the market top will be in 2010. Yet, in the interim, cotton will remain historically volatile…as it gradually works its way toward higher and higher prices.
The speculative community, specifically the large hedge funds and index funds, will increase their long positions in the cotton market. While the hedge funds can and will be quick to take profits from time to time, momentarily pulling the legs from under prices. However, the index funds will maintain their longs and hedge funds will again take new long market positions in cotton.
The growing concern regarding the lack of subsoil moisture in Texas-they still have another six weeks or so--will also add to market support. It is, nevertheless, very doubtful that Texas can begin the cotton growing season with even as much as 50% of the level of last season.
Thus, U.S. production, expected to range between 14.0 and 15.0 million bales, and will likely be on the very low side of that range. U.S. stocks could well slip as low as 3.5 million bales, and likely no more than 4.0 million. The December New York contract will touch 80 cents and the December contract should see ten cents higher.
However, we cannot bring the needed land area into production is the short term. Thus, the price bubble will only grow larger in the near term. The false demand for ethanol, created by U.S. legislation, started the higher price ball rolling.
However, it is the potential food shortage, created by record low vegetable oil stocks (in terms of per capita consumption) that will increase the life cycle of the current grain/oilseed led price bubble. Should the global vegetable oil crisis become more exaggerated, the price bubble for agricultural row crops could extend as far out as 2011-2012.
Too, because of the competition for land area, that bubble will also lead to higher cotton prices. Likely, the market top will be in 2010. Yet, in the interim, cotton will remain historically volatile…as it gradually works its way toward higher and higher prices.
The speculative community, specifically the large hedge funds and index funds, will increase their long positions in the cotton market. While the hedge funds can and will be quick to take profits from time to time, momentarily pulling the legs from under prices. However, the index funds will maintain their longs and hedge funds will again take new long market positions in cotton.
The growing concern regarding the lack of subsoil moisture in Texas-they still have another six weeks or so--will also add to market support. It is, nevertheless, very doubtful that Texas can begin the cotton growing season with even as much as 50% of the level of last season.
Thus, U.S. production, expected to range between 14.0 and 15.0 million bales, and will likely be on the very low side of that range. U.S. stocks could well slip as low as 3.5 million bales, and likely no more than 4.0 million. The December New York contract will touch 80 cents and the December contract should see ten cents higher.
O. A. Cleveland
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Kimberly Morgan and Rik Veltman
K3 Business Technology Group PLC
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