Rising cotton prices and an improving supply and demand picture will not be enough to encourage producers to keep all of their cropland in cotton this spring. Instead, cotton producers are expected to slash 2013 acreage.
According to the National Cotton Council’s annual survey, as of January 1, U.S. cotton producers planned to plant 9.01 million acres of cotton this spring, a 26.8 percent drop from 2012 acreage.
The survey was taken before cotton prices staged a 10% price advance, which means actual acres could increase somewhat, says John Robinson, agricultural economist at Texas A&M University. He expects actual planted acreage to be higher at 9.3 million to 9.4 million acres if drought conditions persist in Texas and Oklahoma.
"Cotton prices need to rise a lot further before producers in the Mid-South can justify planting cotton rather than corn and soybeans," says Robinson. December futures would need to be in the mid-90-cent range for Mid-South producers to choose cotton over corn or soybeans.
However, for producers in Texas, where it is much drier, cotton prices in the mid-80-cent range will encourage cotton acreage. Robinson expects new-crop cotton prices (December futures) to range between about 70 and 97 cents per pound.
USDA is becoming more bullish on cotton. According to the department’s latest World Agricultural Supply and Demand Estimates (WASDE), USDA expects 2012-13 exports to pick up, which could help to lower ending stocks to 4.5 million bales. USDA estimates the marketing-year average price received by producers at 69-73 cents per pound, an increase of 3 cents on the low end and 2 cents on the high end of the range.
USDA left U.S. cotton production and domestic mill use unchanged but raised exports slightly to 12.5 million bales, due mainly to more buying activity from China.
China’s Cotton Hoard
China continues to build its cotton supplies both through increased production and imports. USDA increased China’s projected imports by 1.5 million bales to 14 million bales but left world ending stocks virtually unchanged at 81.9 million bales. However, the department also raised China’s projected ending stocks by 2 million bales to 42.6 million. That means China now holds an estimated 52 percent of world’s cotton stocks—most of it owned by the government.
China produces about 32 million bales of cotton and uses about 37 million bales each year, says Robinson. Thus, China holds more than eight times its annual deficit of 5 million bales of cotton.
The market distortion caused by China’s huge stocks worries Robinson and others. "China is a wild card and a risk—mostly to the downside," Robinson says. In January China started to trickle out some of its cotton reserves, but the amount was low enough that the market impact was minimal.
"China is keeping acres in cotton," Robinson adds. "Without the high cotton support price in China, growers would plant other crops." If China’s policy on cotton shifts, the impact could be felt not only in the world cotton market but also in the corn and soybean markets if Chinese growers shift to those crops.