Market To Growers: Plant More Cotton!

The market is calling for additional cotton acres, says Joe Nicosia; Provide it!

Published on: Mar 1, 2013

The marketing is calling for additional cotton acres, says Joe Nicosia. His message to U.S. growers: "Provide it!"

The noted Louis Dreyfuss Commodities executive vice president/global platform head of cotton encourages U.S. cotton growers to "taken another look at your cotton numbers."

Last month, the National Cotton Council had pegged cotton acres below 10 million acres for 2013.

Nicosia made the comments to a packed room at the 61st annual Mid-South Farm & Gin Show in Memphis today, March 1.

He says look to sell cotton at 85 cents to 90 cents a pound, and use a call option.

Within and without describes the current situation in cotton: What's going on with China in the market, and what's going on without China in the market.

The market is calling for additional cotton acres, says Joe Nicosia; Provide it!
The market is calling for additional cotton acres, says Joe Nicosia; Provide it!

Using its reserve to buy the majority of the cotton it grew at $1.20 per pound, China is holding its cotton, making polyester more attractive to its mills. While the world has largely recovered from a contraction in cotton consumption, the use of cotton inside China has collapsed. The problem is, as the most important consumer of cotton, "If they sneeze, the world gets the flu."

Last year, China had 118.8 million bales in its reserve. After selling off some, they'll still have almost 50 million in reserve when 2013 ends. World stocks are at 88.4 million bales.

 Outside of the China numbers, "it feels tight to the world and we are starting to move up when you don't consider China. Nicosia calls the numbers where China isn't taken into account "free stocks."

~~~PAGE_BREAK_HERE~~~In some cases, prices had to come down last year to force China's hand.

Cotton is now in the 80-cent range. "Opportunity knocks and you better answer," Nicosia says. "This is an opportunity to grow cotton. If you don't, someone else will."

With average yields of 1,000 pounds per acre in Arkansas and Missouri, cotton is the most profitable crop to grow in the mid- to upper-80s for the first time in the Delta, Nicosia says.

The net profit per acre calls for growers to plant more cotton, Nicosia says.

Net profit per acre for irrigated cotton is expected at $406 in Arkansas; corn, $388; soybeans, $394; and sorghum, $183.

 In the long run, "the market outlook depends on China," Nicosia says. Some 113 to 117 million bales will be produced globally in 2013. "As long as China will soak up the surplus, prices will stay the same until China changes it policy."

In effect, China's reserve policy is the current policy for the global cotton industry. "It has the potential to change the U.S. balance sheet in either direction—either a surplus or a deficit. Take the opportunity while it's there."

 Without China, U.S. cotton exports would have been 5.3 million bales last year and not the 6.4 that it was. The U.S. exports 11.7 million bales of cotton.