PCCA - Plains Cotton Cooperative Association Logo PCCA Commentator Magazine Masthead. Vol. 39, No. 2 | Winter 2006-2007

High Quality 2006 Crop Opens New Markets

Cotton Harvest

Most cotton strippers and pickers are now idle in Texas, Oklahoma and Kansas as the 2006 cotton harvest is almost complete. Weather permitting, the majority of ginners expect to be finished with the crop by the end of January, and the cotton industry will once again begin preparations for the upcoming year.

The 2006 Texas crop ended up surprising most industry observers. Off to a rough start due to drought conditions, the state reported an unusually high 34 percent abandonment rate. However, due in part to new seed varieties and an effective boll weevil eradication program, average cotton quality and yields were improved. The 2006 crop, currently pegged at 5.7 million bales, will go in the books as the fourth largest in Texas history, and many producers can boast about the highest loan values they have ever received.

The average loan value on the 2006 West Texas/Oklahoma/Kansas crop was 54.63 cents per pound in mid-December. Lonnie Winters, PCCA vice president of marketing, said the majority of PCCA’s cotton sales have been for export, and the high quality of the crop has allowed his staff to sell cotton in markets not previously open to growths from the cooperative’s marketing area.

“A higher average loan value is positive for our marketing efforts,” says Winters. “In fact, it has allowed our cotton to sell into some markets that have traditionally sourced other growths, and we’re selling some cotton each day despite the current slow market.”

Meanwhile, Kansas cotton producers had almost no abandonment in 2006 and are expected to produce a record 130,000 bales, up from 88,000 the previous year. Oklahoma did not experience the same good fortune, and the state probably will produce only 190,000 bales due to a 27 percent abandonment rate. The previous year, Oklahoma cotton farmers produced a record 358,000 bales.

Although the size of the 2006 U.S. cotton crop will not reach the levels of the previous two years, demand still remains relatively slow, and a sizeable amount of cotton still is in warehouses waiting to be sold.

“The pipelines still are full of cotton from last year’s gigantic crop,” says Winters in reference to the 2005 crop. “Demand should resurface after the first of the year when mills and merchants have worked through some of the cotton they still have on hand. With more than 10 million bales of cotton being consumed in the world each month, the 2006 crop eventually will find a home.”

Analysts have noted the cotton market now is feeling the loss of the Step 2 marketing program Congress voted to end on July 31, 2006. The cancellation was in response to Brazil’s challenge to the World Trade Organization (WTO) alleging some U.S. cotton program provisions were unfair.

“The disappearance of Step 2 has made it difficult at times to sell cotton, and it’s taking some time to adjust to the loss of the program. However, I’m confident demand will resurface, and we’ll sell this crop,” he adds.

Faced by sluggish demand worldwide, many traders have long expected USDA to lower its U.S. export figure. In its December supply/demand report, the department slightly lowered its U.S. export estimate to 16 million bales from 16.2 million the previous month based on slow business from China, the largest customer for U.S. cotton. Export business to China may not increase considerably as the cotton crop in the country now is estimated to be larger than once expected. Therefore, many analysts believe total U.S. exports eventually will be lowered to a figure between 14 and 15 million bales.

USDA also slightly increased U.S. and world ending stocks to 6.3 million bales and 51.5 million bales, respectively. U.S. crop production was left unchanged at 21.3 million bales while domestic use was cut by 100,000 bales to 5.1 million. As a result, U.S. ending stocks rose five percent.

Global ending stocks were raised one percent to 51.5 million bales based on estimated production increases in China, Brazil, and Turkmenistan as well as an increase in beginning stocks. Estimated world production rose to 115.86 million bales from 115.72 million in November.

Meanwhile, as the harvest comes to a close in northern areas, South Texas producers are preparing to plant. Due to higher soybean and grain prices this close to planting time, some observers in the area believe there will be a significant decrease in cotton acreage from the 2006 crop. The trend may continue throughout the United States including the entire state of Texas.

“Judging by current market prices, there could be a major shift away from cotton in the upcoming season,” Winters explains. “Some now say 500,000 high yielding, irrigated cotton acres in Texas may be lost to corn or grain. If that’s the case, it could equate to the loss of about a million bales.” Not one to commit too soon, Winters admits that he does not plan to make any planting estimates at this point in time.

‘There’s a lot that can happen between now and planting time,” he says. “Both Mother Nature and the commodity markets can change directions in the blink of an eye.”