Cotton Prices to Stay Reasonable

April 15, 2009 07:00 PM
 


While 2009 cotton acreage is projected to decrease for the fourth consecutive year, to the lowest levels since 1983, experts anticipate that cottonseed prices will remain "surprisingly reasonable." That's because planting numbers alone do not tell the full story. 

"Compared to the 2008 cotton crop, where abandonment was unusually high at nearly twenty percent, we may actually see slightly more cottonseed supply produced on fewer acres in 2009," says Tom Wedegaertner, director, cottonseed research and marketing, Cotton Incorporated. According to the USDA's March 31 prospective plantings report for 2009- 2010, cotton acreage is expected to shrink by 7%, down to 8.81 million acres.

"While 7% is significant, it is important to note that cotton acreage has dropped by double digit percentages for the past two years," says Wedegaertner. "This lower rate of decline may be a sign we've hit the bottom from an acreage standpoint, and that cottonseed prices could be stabilizing. Additionally, with favorable growing conditions and a return to historical average abandonment rates, it is possible that the 2009 cottonseed supply could meet or exceed last year's supply."

USDA's March 31 report increased anticipated cotton acreage by more than 700,000 acres since earlier industry projections. "Several market and weather factors contributed to the increase. Lower corn and peanut prices, along with normal crop rotation practices, contributed to the shift to cotton. In addition, early drought in Texas and excess moisture in the Mid South during prime planting season influenced crop planting decisions for the benefit of cotton," says Wedegaertner.

If abandonment rates return to average levels, actual cotton production is projected at 12.8 million bales of cotton and 4.5 million tons of cottonseed. After the crush, about 2.2 million tons of cottonseed will be available for feeding, about the same as last year. With lower abandonment rates, and this year's unique market conditions, dairy producers should not only see adequate cottonseed supply, but also moderate prices, Wedegaertner says.

"Unlike in previous years, forward contracting on feed isn't happening quite as much, as producers' cash flows are being pinched," says Austin Rose, a cottonseed merchandiser for Cape & Son, Abilene, Texas. "Many of our customers are buying week to week."

Normally, producers who don't pre-book can find themselves facing steep price increases when supply shrinks. "This year, those dairies that didn't pre-book are no doubt relieved to see feed prices continue to trend downward," says Rose. "With last year's record high cotton prices, dairy producers will probably look at cottonseed as a reasonable value this year."

For more information, including reports on market conditions, feeding information and a list of suppliers, visit www.cottoninc.com.


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