Interviews
Low cotton cultivation in 2009 will help support prices
23 Oct '08
5 min read
All countries--or more importantly—all consumers, are now facing the same economic and debt or liquidity crisis that has brought the world economy to its knees. Until consumers began to feel financially safe and secure again, they will not be in the market for anything other that food and fuel. Thus, purchases for durable goods, and non-durable goods, such as clothing, towels, and other cotton products will not be important to consumers.
In a word: consumer income has fallen and will continue to decline during the remainder of 2008 and through all of 2009. Cotton consumption is directly and very highly correlated with consumer income. Further, with the housing market also in chaos, there will be a significant decline in demand for new towels, new sheets, new upholstery, carpets and all the other goods that consumers traditionally have purchased in conjunction with a new house.
How soon will the cotton market rebound? The short answer, not very quickly. The rebound in cotton prices will be slow. Additionally, the rebound will be highly volatile. We will see periods of limit up increases two days in a row. But, I also see limit down days after those limit up days.
Yet, grain and oilseed prices are still at a premium to cotton prices as farmers look to 2009 plantings. (Yet, it appears that oilseed prices are on a downward path that will offer little economic competition for cotton acres.) Thus, the U.S. cotton farmer will likely decrease his plantings as much as 3.5 million acres.
It is this scenario, not only in the U.S. but also around the globe that will cause 2009 cotton plantings to decline. I warned you last year that 2008 Chinese cotton plantings would marginally lower. But now, 2009 Chinese cotton plantings will be cut as much as eight percent.
It is this downward spiral in world cotton planting that will help support cotton prices. However, cotton prices will not demonstrate sustainable increases until the world consumer decides that the world's economic and financial disaster has been conquered.
This demand created price collapse should be expected to last twelve to eighteen months. Yet, the world liquidity crisis could extend this to twenty-four months. December 2008 New York futures will not see 60 cents again, and will likely fail to move above 55 cents. Further December 2009 will likely get stuck at 65 cents. Corn will continue to out-compete cotton for acreage for at least two to three more years.
In a word: consumer income has fallen and will continue to decline during the remainder of 2008 and through all of 2009. Cotton consumption is directly and very highly correlated with consumer income. Further, with the housing market also in chaos, there will be a significant decline in demand for new towels, new sheets, new upholstery, carpets and all the other goods that consumers traditionally have purchased in conjunction with a new house.
How soon will the cotton market rebound? The short answer, not very quickly. The rebound in cotton prices will be slow. Additionally, the rebound will be highly volatile. We will see periods of limit up increases two days in a row. But, I also see limit down days after those limit up days.
Yet, grain and oilseed prices are still at a premium to cotton prices as farmers look to 2009 plantings. (Yet, it appears that oilseed prices are on a downward path that will offer little economic competition for cotton acres.) Thus, the U.S. cotton farmer will likely decrease his plantings as much as 3.5 million acres.
It is this scenario, not only in the U.S. but also around the globe that will cause 2009 cotton plantings to decline. I warned you last year that 2008 Chinese cotton plantings would marginally lower. But now, 2009 Chinese cotton plantings will be cut as much as eight percent.
It is this downward spiral in world cotton planting that will help support cotton prices. However, cotton prices will not demonstrate sustainable increases until the world consumer decides that the world's economic and financial disaster has been conquered.
This demand created price collapse should be expected to last twelve to eighteen months. Yet, the world liquidity crisis could extend this to twenty-four months. December 2008 New York futures will not see 60 cents again, and will likely fail to move above 55 cents. Further December 2009 will likely get stuck at 65 cents. Corn will continue to out-compete cotton for acreage for at least two to three more years.
O.A. Cleveland
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