PCCA - Plains Cotton Cooperative Association Logo PCCA Commentator Magazine Masthead. Vol. 39, No. 2 | Spring 2007

Great Expectations

Analysts and Government Agencies Estimate 2007-08 Crop Potential

Baby CottonFrom the moment cotton producers contemplated planting the first seeds to begin the 2007-08 crop year, industry observers have been attempting to estimate the eventual size of the U.S. and world cotton crops.

“With a huge 9.5 million bale U.S. carryover from the 2006-07 crop and exceptionally low U.S. consumption, the market is very concerned about the size of both the U.S. and world crop in the upcoming season,” Lonnie Winters, PCCA’s vice president of marketing explained. “A sizeable carryover coupled with a large crop leaves a lot of cotton for the U.S. to sell. Production and consumption figures for China are important to the world market as we anticipate that China will continue to buy U.S. cotton.”

USDA’s May supply/demand report contained the government’s first look at the 2007-08 crop. In its initial estimate of the U.S. and world cotton crops, the department did what many analysts had expected and raised U.S. exports, lowered U.S. ending stocks and cut world ending stocks.

“These are good starting numbers with which to help begin to build an optimistic case for the coming season,” an analyst said. “Of course, they are subjective assumptions in many cases but very reasonable assumptions if world economies remain healthy.”

The production estimate for the 2007-08 U.S. crop was cut to 18.8 million bales from 21.59 million in 2006-07 as farmers likely will plant more corn and less cotton to take advantage of high corn prices. Expected domestic use for the new crop was lowered to 4.4 million bales from 4.9 million in 2006-07 while exports were raised to 17.5 million bales from a downwardly revised 13.25 million in 2006-07, according to USDA. This cut U.S. ending stocks for the new crop year to 6.4 million bales from an upwardly revised 9.5 million in 2006- 07.

“The cotton numbers were very aggressive, but USDA tends to do that in its May report and then they correct over time, and that’s specifically with the new crop,” one analyst noted.

As for 2007-08 world data, USDA lowered its production estimate to 116 million bales from 117.05 million and cut ending stocks to 50.71 million bales from 55.41 million in 2006-07. World consumption was raised to 127 million bales from 122.16 million in 2006-07 which was considered positive for the new crop year.

Traders were anxious to see the first supply/demand estimates for China, and analysts said the numbers appeared to be constructive. China’s 2007-08 production figure was raised slightly to 31 million bales from 30.9 million in 2006-07. Imports were raised to 17 million from 13 million this year while Chinese consumption was increased by four million bales to 54 million. Since China is the primary buyer of U.S. cotton, analysts expect the figure to be positive for U.S. cotton prices.

Market observers now say there is evidence that foreign supplies of 2006-07 cotton are no longer available and may, in fact, have been severely over-sold. Some expect to see Pakistan, Turkey, China, and India emerge as increasingly eager buyers of U.S. cotton in spite of higher prices in the coming months.

“As alternative growths become scarce, the U.S. will become the last stop shop for the whole world to buy cotton,” one analyst said. “If true to form, it will happen quicker than you think, and carry prices further, for longer, than would ever be expected.”

In May, the spread between Chinese and U.S. cotton prices was appreciating to its widest level since last summer. The wider spread and the fact that Chinese import business is picking up is a favorable development for cotton prices in the United States, analysts said. The gradual appreciation of the Chinese yuan against the U.S. dollar also is expected to benefit U.S. cotton export sales.

Closer to home, the 2007-08 season already is slightly behind schedule. Cotton producers always need ample soil moisture before planting and need additional rain afterward. However, recent heavy rains on the Texas High and Rolling Plains have prevented many growers from getting into their fields to plant. The scenario is the same for many producers in Kansas and parts of Oklahoma. Growers who have not planted are awaiting warmer weather as soil temperatures need to average approximately 60 degrees for seed to germinate and begin to grow.

Central Texas and the Upper Coastal Bend areas also were wet in late May. The Taylor, Texas, area had received twice its normal annual rainfall, and some producers there had to replant. The shift to higher-priced grains and an inability to replant cotton in a timely manner has led analysts in Central Texas to believe the acres planted to cotton in the area will be down approximately 20 percent from 2006. For the same reasons, cotton acreage in the Rio Grande Valley could be only half of what was harvested last season while the Corpus Christi area could be 30 percent lower, but the crop seemed to be doing well in late May.

“I would rate the Corpus area crop in excellent condition only because it’s considerably better than it was at this time last year,” Cris Gwinn, PCCA’s South Texas Division manager said with a smile. “Acreage has been reported to be down as much as 30 percent, but the early rains have the crop in much better shape than last season.”

Analysts agree that it is difficult to make crop predictions this early in the year as weather conditions in the months ahead could easily boost or lower the U.S. crop. Many in the industry, however, still are optimistic about the upcoming year.

“From the High Plains of Texas to the cotton producing areas of Kansas, planting is two to three weeks behind on the majority of our cotton acreage,” Winters said. “We have the best subsoil moisture I’ve ever seen, and if temperatures rise, the sun shines and there’s no hail, the crop will catch up. Despite lower cotton acreage, we’re looking for a big crop in 2007-08, and we could possibly see record yields on dryland acreage,” he added.