SAN ANTONIO Cotton producers should not expect significantly higher cotton prices during the remainder of the 1999-2000 marketing year, said William B. Dunavant Jr., head of Dunavant Enterprises, at Wednesday’s general session of the 2000 Beltwide Cotton Conferences here.
Ample cotton supplies worldwide will continue to put downward pressure on prices, in spite of a recent upswing in cotton consumption and usage by the global textile industry.
“I do not see any factors that would push prices five to six cents higher than current levels. In fact, prices may slump further this spring in anticipation of spring planting,” Dunavant said. “I don’t see any reason to hold onto old-crop cotton. If I were a producer, I would continue to market my 1999 crop at the best daily price available.”
At the same time, Dunavant advised producers to be cautious marketers with their new-crop cotton.
“I wouldn’t hedge a bale of new-crop cotton with December futures contracts trading at 55 cents per pound. But if the market takes a long position and pushes December above 60 cents, I would take a long, hard look at hedging probably through options,” he added. “Still, spring planting is a long way off. I would be cautious about hedging until we have a clearer picture of the U.S. and world supply picture for 2000.
“But as spring approaches, I would certainly consider buying December puts to hedge downside price potential. Puts and calls should hold optimum premium value well into September. If global planting intentions and acreage are as large or larger than the trade now expects, I wouldn’t fix a price on my new-crop cotton. Instead I would sell the basis on call.”
Dunavant agreed with the USDA’s Dec. 10th 16.9 million bale final estimate of the 1999 U.S. cotton crop and its 10.1 million bale estimate of domestic U.S. cotton consumption. He projected exports will escalate to 6.3. million bales because of Congressional reauthorization of Step 2 funds last fall. Step 2 monies fund export enhancement of U.S. cotton in the global marketplace.
“With a 16.9 million bale crop and an offtake of 16.4 million bales (domestic consumption plus exports), U.S. carryover should be close to 4.5 million bales about 500,000 bales more than last year’s 3.9 million bale carryover,” Dunavant said. “That is why March cotton is currently trading at only 50 to 51 cents per pound.
“The global picture is a little different. I believe world production this season will be approximately 86.3 million bales, with world consumption of 87.9 bales. That means we could reduce world carryover by about 1.6 million bales, leaving us with a 37.3 million bale carryover which would keep a lid on prices during the current marketing year.”
Even so, Dunavant said there are a few bright spots ahead.
“The textile industry is running strong right now, helping pull down price-depressing supplies. And I look for our global export competitors to reduce their acreage this year, while world consumption and demand rises,” he said. “There are also signs that China will reduce its production, and boost its domestic consumption and imports to help reduce world carryover even further.
“If that scenario pans out and the price of synthetic fiber keeps rising, we could see U.S. export sales of more than 9 million bales in 2001. We stand a good chance of improving our export market share as our competitors reduce their production.”
Dunavant said he expects producers to plant 14.9 million acres of cotton in 2000 and harvest an 18.6-million bale crop. If stronger exports and domestic consumption total 18.1 million bales, U.S. carryover could fall below 4.5 million to 5 million bales in the 2000-2001 marketing year and strengthen prices.
Addressing recent calls to revisit and revise U.S. farm policy, Dunavant said Freedom to Farm is currently the best production vehicle for U.S. cotton producers in spite of low market prices.
“Emergency farm legislation and disaster aid legislation carried us through a difficult year in 1999. I wouldn’t discount the possibility of repeating that scenario this year if it is needed, primarily because it is an election year,” he said. “But until we have a level world trading field, we need to move cautiously in any revision of farm policy.
“We don’t need government to get back in the business of managing supply with allotments. Instead, we need to continue to push for a level world trading field through NAFTA and GATT, and do all we can to support a strong global textile industry.”