"There's nothing wrong with selling cotton for $1.40," says Jordan Lea, chairman of the Eastern Trading Co., in Greenville, South Carolina.
Lea's comments came during the market outlook session of the general Production Session at the 56th annual Beltwide Cotton Conferences in Atlanta, Wednesday. "There's just not a lot not to like about cotton prices," he said, and that goes for this year, next year and probably into the following year.
While the optimistic cotton trader says prices could fall back to the mid-80s range on short-term events over the period, the world commodity ending stocks situation is such, it would take a "significant drop in demand and a significant jump in production" to really pressure cotton prices over the next several years.
"While 96% of the 2010 crop is sold, I hope producers have had their eye on 2012 futures prices—they've already hit 90 cents once," Lea explained, noting "selling 'dollar' cotton is never a bad thing, whether you're averaging up or averaging down.
Currently cotton prices are hovering around $1.40 and have been as high as $1.60 –a record on the New York Exchange—but Lea agrees much of the 2010 crop was sold going into those peaks, averaging about 80 cents per pound.
"Rather than get down about not catching the peaks, producers should consider that two years ago we were selling cotton for 38 cents a pound!," he added.
Looking at U.S. cotton, corn and soybean trends since 2007, each year has seen roughly half of the previous year's ending stocks removed by December 31, leaving cotton stocks this year at 9.8%, the lowest in history, and at a trigger point for the record prices seen over the past several months. Demand in corn and soybeans is also at a high, despite big crops, and as world and U.S. economies rebound over the coming years, the prospect for continued increases in demand are good.
"Face it, roughly one half of the world's population now lives in a robust economy, and that means continued increases in demand," Lea explains. "Because of that, they'll buy another shirt or another pair of cotton pants when they shop, and that directly affects you."
"Also, consider in 1995 we were selling 20 million bushels of soybeans at $5," Lea notes. "This year we'll export 900 million bushels at $12!, Demand is strong and shows no sign of significantly dropping," he continued.
Cotton, corn and beans share a similar price chart trend, and in this case the trend is the friend of the producer. "We are fortunate that we have high prices without a crop disaster, and barring unforeseen circumstances it looks as if demand will remain high through 2013 at least," he added.
The trader notes in China ending stocks of cotton are dwindling, too, and that generally means the world's most populous nation enters the market to build back supplies. "I don't think that is out of the question this coming year, even at these prices – again, more demand with limited supplies holds prices high," he explained.
Of course India and China ultimately will see a cooling of their rapid economic expansions, and Lea says many successful Chinese are investing in what appears to be a Chinese version of the U.S. Housing bubble. That could someday cause the undoing of the Chinese expansion, but such a situation seems quite far removed from today's marketplace.