2007/08 forecast & caveats of cotton

31 Mar '07

3 min read

Favorable soybean economics are supported by fewer problems (relative to corn) in hauling, drying, storing, or marketing soybeans. However, there are some forces that favor cotton over soybeans. One would be growers with very high cotton yield expectations. Another exception would be growers wary of poor soybean yields with potential dry weather from the current La Nina pattern.

We may already be seeing the effects of this in the recent expansion of dry areas in the Deep South. The flip side of this weather question (which is now The Question for the next five months) is the effect of any dry weather on cotton yield expectations. The major cotton growing regions in northwestern and southeastern Texas have excellent deep soil moisture. This means that large expanses of dryland acreage will likely make some sort of crop on the water that is already "in the bank". A few timely rains could then produce cotton yields at least as good as last year.

The point of bringing up these possibilities is that it is a long, long way from now til June 30 (the next USDA acreage report). To get sustained cotton futures above 60 cents probably requires ending 2007/08 ending stocks-to-use below 20%. The latter probably requires either U.S. plantings below 12 million acres or average U.S. yields below 800 lbs/acre.

In terms of the World new crop supply/demand picture, I think that a likely decrease in 2007/08 below 40% suggests that the A-Index could rise enough to significantly erode loan deficiency payments. The underlying forecast for this was supported by the February report of the International Cotton Advisory Commission which forecasted an expected decline of 2007/08 world ending stocks to 49 million bales, based on expected stable production and greater demand.

Texas A&M University

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