USDA Projects Sharp Decline in Cotton Prices

February 24, 2014 08:43 AM
 
7 5 12 Texas cotton

The government's forecast for cotton farm prices during the current marketing year is below many farmers' cost of production.

USDA’s Cotton Outlook, presented during last week’s Agricultural Outlook Forum, calls for a 10.5% decline in average prices to 68 cents per pound during the current marketing year. The department’s price projection, which would mark a five-year low, is below the industry’s average cost of production, 70 cents per pound.
 
The drop in prices will largely stem from an increase in world stocks to more than 100 million bales as world production exceeds consumption for the fifth consecutive year. Slightly more than half those ending stocks will be in the United States, according to USDA projections, presented by James Johnson, an agricultural economist with USDA’s Foreign Research Service.
 
World stocks have more than doubled since 2009, Johnson reported, largely because of Chinese government policies that supported world prices at above market-clearing levels.
 
"China’s government now intends to reduce support levels," the report notes. "However, world stocks are unlikely to fall in 2014/15 as the adoption of new policies will be gradual and world production and consumption responses will lag changes in policy and prices."
 
Despite the dour price forecast, U.S. farmers are likely to plant more cotton acres this season. USDA predicts that producers will plant 11.5 million acres this year, a 10% increase over last year, a figure that is in line with industry forecasts.
 
The government expects much lower abandonment this year, however, which could have a dramatic impact on production levels. Projecting 16% abandonment rate, down from 26.4% last year, and a yield of 8,905 lbs. per acre, USDA estimates cotton production will reach 16.3 million bales, a 23.5% increase over last year.
 
John Robinson, a professor and extension economist with Texas A&M, who presented on the same panel, said that USDA’s projection for planted acres "seems pretty reasonable to me." Robinson expects that comparatively low grain prices will lead Texas producers in particular to plant more cotton this year.
 
Export demand, Robinson said, is the key to any cotton forecast. Related to that is how quickly the Chinese government will sell down its 50-million bale cotton inventory. "China is a big bureaucracy," he said. "Slowly whittling it down without doing any radical makes the most sense."
 
China last fall announced changes in its cotton policy. It intends to reduce support levels. USDA expects the Chinese government to phase in these changes gradually, however, "and world production and consumption responses will lag changes in policy and prices."
 

 

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