Cotton futures prices are sagging against a background of extreme weather and the prospect that world cotton production will exceed cotton consumption, said Scott Stiles, extension economist-risk management, for the University of Arkansas Division of Agriculture.
December cotton futures lost another 7 cents last week to finish at $1.1561.
"New crop cotton prices have been under pressure since early April," Stiles said. "Since reaching a high of $1.44 on April 6, the December 2011 contract has traded as low as $1.13 on Friday the Thirteenth."
USDA Supply-Demand provided little in the way of positive news for new crop cotton prices.
The May USDA report offers the first detailed estimates for the 2011-12 growing season. Despite a projected 1.6 million-acre increase in 2011 cotton plantings, U.S. production is expected to remain stable year-over-year at roughly 18 million bales. Given this production estimate, the USDA is showing some concern over the flooding in the Delta and severe drought in Texas.
"The Cottonbelt is one of weather extremes at the moment," Stiles said. "The Delta's final cotton acreage remains in question due to flooding and in contrast, it is too dry to plant in much of the key cotton producing area of the Texas High Plains.
More insight on this will be provided in the USDA's June 30 "Acreage" report.
"At first glance, stable production sounds positive for prices," he said. "Mill use is projected to hold at 3.8 million bales, however, export demand is expected to decline 2 million bales in the coming year from the current 15.5 million due to foreign competition.
U.S. ending stocks for the 2011/12 marketing year are projected to increase from 1.75 million to 2.5 million bales. Though increasing, supplies will remain relatively tight and the third lowest since the mid-1960s. The USDA expects producer prices for the 2011 crop to fall in the range of 95 cents to $1.15 per pound.
"The USDA's current world cotton balance sheet for 2011 may have provided the most negative news," Stiles said. "The USDA's May forecast pegged world production at an all-time high of 124.7 million bales. This would be a 10 million-bale increase over last year, with a significant part of the production increase is expected to come from China, India, and Pakistan."
World cotton consumption in 2011/12 is expected to increase 3.0 million bales to 119.5 million bales. But, for the first time in six years world cotton production is expected to exceed consumption. Ending stocks are expected to grow by about 5.4 million bales to 47.9 million bales next season.
Stiles said weather conditions, the amount of foreign cotton production and consumer demand for cotton will steer price direction in the coming months.