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Production and Price Uncertainty Dominate Cotton Market

By Lynette Cockerell

The majority of the 1998-99 U.S. cotton crop has been tormented by adverse weather conditions this season, prompting a wide range of production estimates from those in the market. Because of the uncertainty surrounding the size of the U.S. crop, and its potential impact on cotton prices, analysts have been paying keen attention to any technical as well as fundamental news which comes across the wire.

USDA supplied the market with its first real glimpse into the U.S. crop size with the release of the department’s July Supply and Demand report on July 10. Interestingly, the figures neither appeased the bears nor satisfied the bulls. In fact, the report was considered to be completely neutral, almost matching the expectations of most analysts. The market, which had no enthusiasm for a neutral report, simply collapsed at that time.

Predictably, USDA cut U.S. production prospects from its June report by 700,000 bales, leaving the country’s expected outturn at only 15.0 million bales. The decrease was based on a significant national abandonment rate of 13.7 percent and an average yield of 645 pounds per acre on the remaining acreage, almost mirroring the five-year average of 643 pounds.

Despite recent beneficial weather in the Delta and Southeast, which rescued cotton crops in those areas, wet weather in California and a three-month drought in Texas already have stunted much of the nation’s cotton crop this season. As a result, analysts believe this year’s cotton harvest could be the smallest since producers reaped just 12.2 million bales in 1989.

Additionally, U.S. exports have slowed as U.S. cotton prices are considerably higher than most of the country’s foreign competitors. According to one analyst, domestic mills also have been reluctant to purchase large amounts of cotton as they are feeling pressure from inexpensive, imported textile goods. USDA recognized the decrease in the demand for U.S. cotton in its report by lowering U.S. exports to 5.0 million bales and pegging domestic use at 11.0 million. Due to these cuts, the department foresees a 1998-99 U.S. carryout of 3.0 million bales, which would result in an ending stocks-to-use ratio of 18.8 percent.

As for world numbers, USDA added 1.54 million bales to 1997-98 ending stocks and 2.43 million to the new-crop carryout. World ending stocks next season are projected at 38.0 million bales.

USDA’s world usage estimate has been cut 1.6 million bales in the last two months, and many in the industry believe further cuts could come in the future. However, usage currently is projected to exceed production by 2.18 million bales.

Closer to home, drought and blistering heat in West Texas have wiped out much of the dryland cotton and drastically lowered yield potentials for both the dryland and irrigated cotton which remains. Agronomists in the area estimate that 85 percent of the dryland cotton on the High Plains has been abandoned by producers, with July rains doing little to aid existing crops.

“The good news is the lateness of the High Plains crop and the intense heat have hindered boll weevil hatching, and insect pressure is incredibly light,” one producer commented. “The absence of rain has made things incredibly difficult, but we have lost very little cotton to hail this year, so things could always be worse than they are now,” he added.

Some in the region also are concerned about the abandonment of irrigated cotton due to the high cost of irrigation and the rapidly declining water tables in some areas.

Industry estimates tentatively have pegged High Plains prospects at only 2.2 million bales, down from the 3.4 million bales produced last year and the smallest output since 1.4 million bales in 1992 when growers lost the bulk of the irrigated crop. The abandoned acreage will affect not only the West Texas cotton outlook but could cause a serious decrease in the expected 5.4-million- acre statewide crop.

The forecast for the Texas crop as a whole still is not particularly promising as persistent dryness across the entire state likely will not allow the remaining acres to produce outstanding yields. Expectations are for the surviving dryland crops statewide to produce 250 to 350 pounds per acre, about half of the 500 pound normal yield. Additionally, heat stress and strained water supplies have prompted governmental agencies to cut overall irrigated yield expectations in Texas 10 to 15 percent from the normal 650 pounds per acre.

Meanwhile, the cotton harvest was ahead of schedule in South Texas by late July and was expected to progress rapidly if the weather continues to cooperate. The area experienced only a 10 percent abandonment rate and had very little insect pressure, however, crop yields are not expected to be stellar this year as hot and dry conditions have plagued the area for the last three critical months of the growing season.

Fortunately for South Texas growers, their cotton probably will quickly find a buyer. “There seems to be a reasonably good demand for the first cotton of the season this year, and South Texas producers who have an earlier crop than usual may be able to benefit from this demand,” according to David Stanford, PCCA’s vice president of marketing.

Crop conditions in Southern Oklahoma were similar to those on the High Plains. The crop, which already is smaller than average and slightly behind schedule, will be further limited by yield losses due to the continuing drought. However, the bleak story brightens further north as the cotton crops in Northern Oklahoma and Southern Kansas received adequate rainfall at critical points in the season and appear to be right on target and better than average.

For the remaining cotton producers in Texas, Oklahoma and Kansas, the price outlook for the 1998-99 marketing season appeared somewhat uncertain at this writing. U.S. production, Asia’s economy and the ability of U.S. cotton to compete in the world market were casting ominous clouds of doubt rather than rain clouds so many producers yearned to see.