Cotton futures gain – despite prospect of near one million acre US sowings rise
US farmers will raise their cotton sowings by more than 900,000 acres this year, encouraged by higher prices, according to industry data which underlined too expectations of growth in soybean plantings
US growers will plant 11.02 million acres of the fibre this spring, a rise of 9.4 % year on year, the National Cotton Council said, following a farm survey.
Sowings at this level – which would complete a recovery from the 8.58 million acre figure recorded in 2015, the second lowest on data going back more than a century – reflected the encouragement of higher values, which have been supported by firm demand for US exports, amid a squeeze on Indian supplies.
“History has shown that US farmers respond to relative prices when making planting decisions,” said Dr Jody Campiche, the NCC’s vice-president, economics and policy analysis. During the survey period, in December, cotton futures “averaged 70 cents per pound, which is higher than year-ago levels. Corn prices were lower than year-ago levels,” although soybean prices “were about 12% higher”.
In fact, with New York cotton futures appreciating further since, adding some 8% so far this year to stand amongst their highest levels in six months, plantings may even end up higher.
“If the survey were conducted today, given current cotton-competing crop price ratios, and the current projected level of [US Department of Agriculture] revenue insurance guarantees, we would expect the figure to be 300000-500000 acres higher,” said Louis Rose at the Rose Report.
However, cotton futures – which have been buoyed by strong US exports of the fibre, and fund buying which has lifted the net long in New York derivatives to a record high – rose further nonetheless in early gains in New York, adding 0.7% to 76.32 cents a pound for the March contract.
Many observers had talked ahead of the NCC report of a large rise in US cotton area this year, with analyst Judy Ganes-Chase last week saying that “US cotton planting could be up at least 10%”.
Furthermore, the NCC flagged that the rise in plantings need not be reflected in production – saying, indeed, that next year’s US harvest could fall despite extra seedings, assuming levels of abandonment return to normal levels from the low level of 5.5% recorded last year.
“Planted acreage is just one of the factors that will determine supplies of cotton and cottonseed,” Ms Campiche said. “Ultimately, weather, insect pressures and agronomic conditions play a significant role in determining crop size.”
Factoring in a more typical figure of 12 % for the abandonment rate, and an “average” yield of 830 pounds per are for yield “generates a cotton crop of 16.8m bales”. That would represent a decline of some 200000 bales in output year on year.
Cotton vs grains vs soybeans
The data come amid a growing focus on prospects for US sowings of crops such as cotton, corn and soybeans which compete for area in spring plantings programmes in many areas – and with more area potentially up for grabs after declines in wheat seedings in the autumn.
Indeed, in Texas, the top cotton-growing state, Oklahoma and Kansas, a cotton sowings rise averaging 10.7 % was expected to come largely at the expense of wheat, with corn acreage seen suffering too.
However, the NCC survey also flagged the lure of soybeans too, which are expected to pull some acres from cotton in some south eastern states, such as North and South Carolina.
And in the mid-South, “in all states except Mississippi, soybean acreage is expected to increase”.
Growers in the region, which also includes the likes of Arkansas and Missouri, “have demonstrated their ability to adjust acreage based on market signals, in particular, relative prices of cotton and competing crops”.