Market Expert Optimistic about U.S. Cotton Prices in 2007 Market

Grains pressured by biofuels will squeeze cotton acreage.

Published on: Jan 12, 2007

Cotton prices are likely to climb during the 2007-2008 season, said Jarral Neeper, Calcott Ltd's vice president of marketing, in his economic-forecast presentation during the 2007 Beltwide Cotton Conferences in New Orleans. One important reason is because more acreage may be leaving cotton for corn and soybeans as the prices of those commodities continue to rise due to increasing demand for biofuels.

Neeper also expects less cotton in other countries to be available to the export markets in 2007-2008, while world production remains about the same as 2006-2007.

"I don't know if it is going to happen in March, July or December, but we're probably going to see something around 72 cents on the nearby contract. And I believe a lot of this friendliness is going to come because of what is expected to happen in the 2007 crop year," Neeper said. "Definitely, the grain prices are going to take away the cotton acres. I'm looking for a decline of somewhere between 7-10% here in the United States. World area may fall 2%; however, world production will be roughly unchanged from 2006, whereas world consumption will continue to go up (about 1%-2%). The overall stock level should continue to decline, although a little slower than what we would like to see."

Ending stocks should work lower - and prices higher, he added.

Inside the U.S., Neeper predicts quite a shift in acres . Region-by-region he estimates:

The Southeastern U.S is likely to see a decline by about 6% in cotton bales for 2007-2008.
Texas/Oklahoma/Kansas bales will decline by about 7%.
The Mid-South region will lose about 16% compared to the number of bales it produced last year.
The Far West will also see a loss of about 16% in the upland cotton produced in 2006-2007; but Neeper says pima cotton production will climb about 16% and "just about offset" those cuts.

Despite his expectation for price increases all is not rosy in Neeper's forecast, particularly as he scrutinizes technical charts.

"The future definitely looks better for cotton prices but we do have price resistance at the wholesale and retail levels which is squeezing margins along the whole chain," he said. His conclusion? The price will respond slower than normal, with close attention paid by the market to weather and economic trends, but higher prices will eventually win out this year.