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Cotton Market Experiences Rare Harvest Price Spike

Planting Roots Far From Home

BY JOHN MILLER

Valley cotton farmers have experienced a lot of change during the growing season. Early on, dry conditions led to a loss of cotton acreage, some of which were switched to grain after crop failures in attempt to keep the land productive.

A significant share of the cotton that completed the growing season made an impressive mid-season improvement that saw per acre yields up to and even exceeding 2 bales per acre on non-irrigated land. In addition to the late season improvement in the cotton crop, prices have experienced an unexpected post-harvest spike to levels not seen very often at any time of year. As you can see from the December Cotton Futures Chart (CTZ21), cotton futures prices exceeded 1 dollar per pound for the first time since the fall of 2011.

While there does seem to be a lot of trading resistance at about the $1.05 level, it is too uncertain to say that this market is out of steam. But as you can imagine, futures traders remain extremely cautious since speculators could easily liquidate long positions for taking profit, especially given the longevity of the two weeks long rally. In addition, the total Open Interest in the cotton futures markets is topping 290,000 contracts, which is the largest figure for this time of year in the last 5 years. So, the uncertainty centers around whether there is enough bullish information to keep the selling off of an overbought market at bay. You can also see from the CTZ21 chart, that in recent weeks the cotton market has continued to rally in the face of an increasing US Dollar which is typically not the case.

It is difficult to put percentages on contributing factors in the most recent run-up in cotton futures prices. There seems to be confidence about future demand, especially from China. Speculators may also be tying cotton in with rising energy prices. But there are also numerous short-term concerns primarily related to weather.

Heavy rainfall in Texas, Oklahoma, and Arkansas this past week has raised concerns about the cotton crop in those states, especially on the significant about of ‘open’ cotton primed for harvest. While the overall US crop is an unusually high rated 64 percent good-to-excellent, a considerable amount of this cotton is at a vulnerable stage. It seems that the added reports of both China and India experiencing weather issues that have caused some flooding has added anxiety to the marketplace as well. There are reports that heavy rains from Cyclone Gulab having damaged summer crops in India, including cotton, just as harvest is set to begin there.

As with any market run-up, it us typically a culmination of numerous price-positive

factors that turn a market ‘bullish’. And this one has been bullish since late summer. In addition to the concerns about weather, improved export reports have likely been the factors that have most helped push the market over 1 dollar per pound. The recently improved export numbers over the last few weeks is led by China’s reserve buying. You can see from the Top 10 Market Year to Date Cotton Sales chart that China has been the number one destination during the current marketing year.

Pakistan, Turkey, Mexico and Vietnam round out the top five, but all at levels much below China. As with so many commodities, China is such a big part of the US export program. It has only been over the past couple of years that China has rebounded from an almost non-existent purchase program for US cotton. The speculative market has a strong appetite for information related to US sales to China, but of course the big question is whether or not it will continue at these demand-killing prices, and the probable loss of market share to synthetic fibers? What you immediately see is that the 2022 cotton market futures are trading at approximately 86 cents per pound which is roughly 16 cents per pound below the 2021 level.

What you immediately see is that the 2022 cotton market futures are trading at approximately 86 cents per pound which is roughly 16 cents per pound below the 2021 level. This suggests that speculators are much more interested in the short-term issues discussed above rather than potential problems far in the future. The marketplace is in effect saying that they want cotton for use now rather than stored for later time periods. For the farmer however, 86 cents per pound can be profitable and will have some producers looking to lock in profits for next year.

What we have to hope most for is a type of winter that provides the moisture needed to pull off a successful planting season in the spring so that Valley farmers can capitalize on some of the best prices seen in some time.

From the US Cotton Export Sales Progress Chart you can see that the cumulative sales for 2021/22 have now reached 7.224 million bales which is down slightly from the 7.956 million seen at this time last year. The US has reached approximately half of the USDA’s forecast for exports for the entire marketing year. One thing to keep in mind with December cotton trading over one dollar is that if we do not continue to see increasing weekly export sales we have to wonder where the music stops on behalf of the increasing speculative long position crowd. As with all businesses right now, rising input costs create even more uncertainty. A continuation of these types of prices until more is known about 2022 growing conditions is a tall order. Outcomes like the current year are few and far between but so needed from time-to-time to keep Valley farming sustainable contributing to the local economy.