Burdensome cotton inventories? Think again

The other factor that is driving prices is more forward-looking. The major producing countries will be devoting less acreage to cotton planting for the 2013-14 crop. The most stark example is the US where it is estimated that some regions will see cotton area reduced by as much as 25%. Early forecasts put the US crop at about 13 million bales, down from 17 million bales in 2011-12. That would be just slightly larger than output in 2008-09 and 2009-10 – which averaged 12.5 million bales – and which sparked the spike to above $2 per pound. We will get a better picture of the national average when we see the planting intentions report on March 31. The estimates for 2013-14 global output vary wildly, from 111 million bales to 115 million bales.

In the interim, traders will grapple with the possibility that the rally may have been timely enough to have encouraged a shift of some more acreage to cotton. We believe that the rally was too late. Even at these prices the economics favor grain and soybean planting.

Chart 2, 3 and 4 show that, indeed, over the past few months, cotton has outperformed the three major crops that will compete with it for acreage – soybeans, corn, and wheat.

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