Cotton Prices Stabilize And Find Support

Cotton export sales have picked up, a good sign for 2013 cotton.

Published on: Dec 5, 2012

By Don Shurley

Merchants are now pricing the old crop (2012) off the  March  futures.    Southeast  spot  prices  are currently running 200 points (2 cents) under March for  base  grade  41/4-34  and  150  points  over  for better 31/3-35.  That's a 350 point premium for the better grade.

Today,  March  currently  stands  at  just  under  74 cents.    Prices  seem  to  have  found  a  firm  floor  of support  at  the  70-cent  area  and  are  showing improvement.    March  has  gained  almost  4  cents from the most recent low about 3 weeks ago.  As of right now, we're up over 2 cents for the week.

Cotton Prices Stabilize And Find Support
Cotton Prices Stabilize And Find Support

Reports  suggest  that  export  sales  have  picked  up, thus  affirming  that  there  is  business  at  these  price  levels.    This provides the floor of support.  Prices are most likely to trade within a band of 70 to 77 cents.  Producers looking for post-harvest pricing opportunities should give consideration to pricing on rallies to 75 or better.  Also, keep a close watch on the basis.  The basis right now is very good, especially for better quality fiber.  If the basis should begin to decrease for whatever reason, this will negate some of any improvement in futures. New crop  Dec'13  futures  have  also  shown  some improvement.  Currently, prices are at just over 77 cents.    The  "premium"  on  the  new  crop  has narrowed,  however,  due  to  a  slightly  better  uptick in old crop futures.

At  this  point,  it  looks  like  the  2013  crop  wants  to trade mostly between 75 and 80 cents.  This will no doubt result in an acreage decrease for 2013—but this is expected and already factored into prices.   I would not expect prices to move higher out of this range since that might result in keeping some acres in  cotton  that  are  otherwise  headed  to  another crop—a  signal  the  market  does  not  want  to  send right now.

New crop prices are likely to be held in check by large global supplies (stocks) and weak/stagnant demand that, while good recently, may be stymied by a trend to higher prices.  Producers will have to eventually think about when (at what price) that 2013 marketing should begin.  Decisions have to begin eventually.  Something in the neighborhood of 80 cents could be a reasonable start.  

Shurley is the University of Georgia cotton economist.