Virtual Cotton U event breaks down market outlook for producers

Along with most other events scheduled for 2020, the High Plains Journal-sponsored Cotton U in-person event was canceled due to the COVID-19 pandemic. The event then pivoted to a virtual platform on Dec. 3 in order to provide the cotton growers of the High Plains with the same line-up of industry experts and information packed presentations.

This year’s event speakers included: Seth Byrd, Oklahoma State University cotton Extension specialist, Dr. Warren Ashley Hammac, soil science/agronomic specialist at Ward Laboratories, John Robinson, professor and Extension economist, Department of Agricultural Economics, Texas A&M University and the ever-popular Cotton-U farmer panel.

Robinson took the screen for an informative presentation on the current and future cotton market outlook and risk management considerations. He said in the past cotton prices were controlled by regional markets and trends, but nowadays it is a worldwide enterprise that mimics the rise and fall of other countries.

“It’s a global market and we have to worry about global supply and demand and then we have to worry about things that really don’t have anything to do with cotton or agriculture at all, like exchange rates and currency markets that effect the competitive position of cotton exporters,” Robinson said. “We’ve also got to worry about other things like trade relations, foreign relations, how the Trump administration is getting along with China and how that might change in the next administration. Additionally, in the world, we’ve got to account for all the other major players because that’s where a lot of the influences in our market are now coming from in terms of production.”

According to Robinson, the U.S. is the No. 1 cotton exporter, but we are only the third largest producer behind China and India. Not only is China the No. 1 consumer of cotton fiber in the world in terms of milling into thread, the Chinese are also the No. 1 exporter of apparel, although that share has been dropping in 2020 for various reasons.

Looking into the crystal ball of cotton’s future

Robinson said the art and science of predicting prices is not exactly rocket science. The fundamentals are actually pretty straight forward. “When we predict prices, we’re basically asking the question, what’s happening to the surplus ending stocks,” he said. “As ending stocks go up, prices tend to weaken and vice versa.”

According to Robinson, cotton growers planted over 12 million acres in 2020 and are projected to harvest 9 million acres with the average yield being 911 pounds per acre, which tallies the total estimate at a 17 million bale crop.

“That’s down from the 18 million the U.S. Department of Agriculture forecast earlier in the year, but with the kind of year it has been a lot of people are left wondering how much cotton we will actually harvest this year,” Robinson explained. “West Texas started off really dry, we’ve had more tropical storms slamming into the gulf coast than I can keep track of, it’s been raining from the Texas coast to Louisiana to Georgia, we’ve had early freezes, ice storms and low turnouts, so there’s just lots of expectation that this 17 million bales of production is too high.”

Conversely, Robinson said the estimate could mean we have more bales than people think, they just might be lower grade and there will be an oversupply of low-grade cotton.

“Every merchant I’ve talked to who crunches numbers has told me they’re really expecting a crop around 16.2 or 16.3 million,” he said. “I think a cut to ending stocks is already priced into the futures market that we are seeing now. The merchants are already expecting it so their commercial positions are probably already taking it into account.”

2020 has also been a rocky year for cotton demand with financial difficulties and retail slowdowns. Because cotton is made into discretionary consumer products like clothes and home furnishings, during tough economic times people simply step back and demand goes way down. While much of the market bounce-back depends on when the COVID-19 vaccine will be distributed, Robinson expected a significant lag for retail and consumer confidence to recover.

“In general, cotton consumption and market prices follow the influence of the regular economy more so than other ag commodities,” he explained.

For the 2021 cotton crop, Robinson expects changes with weather conditions, but optimism for rising cotton prices in the spring.

“When it comes to planting if you take a simple approach and look at the ratio of corn futures to cotton futures, it suggests we might be planting around 13 million acres,” he said. “The other big influence on next year’s plantings will be the forecast of La Niña conditions—we’re in a La Niña situation right now, which tends to make it dryer and warmer than normal, particularly in the southwest.”

To learn more about Cotton U, visit www.hpj.com/cottonu/.

Lacey Newlin can be reached at 620-227-1871 or [email protected].