To illustrate, November 2013 soybeans, which represent the crop that will be planted next spring and harvested in the fall, are trading at $13.35 per bushel, $2.30 per bushel below spot November. December 2013 cotton is trading at 77¢ per pound, 4.5¢ per pound above spot December. And yet soybean prices are still near their historical highs vis-à-vis cotton (Chart 3). In fact, in an early forecast for 2013-14 acreage, Informa Economics estimates that soybean acreage would climb by 2.7 million acres, to 79.9 million acres. Cotton acres, on the other hand, are estimated to fall by 2.36 million acres, to 10 million acres. It’s not much of a stretch to assume that a similar pattern will emerge in other producing nations as well.
Prices would have to rise substantially within the next couple of months to incentivize increased cotton plantings, in the US and abroad, and precisely because global inventories are so large, that is not a likely scenario. The decision to plant much less cotton could be misguided if demand exceeds expectations and we eat into the monster stockpiles at a faster rate than anticipated.
We are long December cotton, with a stop at 69¢ per pound. We recommend rolling to December 2013, placing initial stops at 72.5¢ per pound, close only.