2023/24 Fundamentals, Outlook, and Caveats
The supply and demand picture for the 2023 crop is unfolding. To begin with, the size of the 2022 crop and carry-in is still being finalized.
Then there is the question of 2023 production. The price of competing crops, relative to cotton prices, is an important consideration. If you take Dec’23 corn futures trading under $6 per bushel and Dec’23 cotton in the lower-to-mid 80s, the result is an relatively high ratio of corn futures prices to cotton futures prices (Figure 1, x-axis). The average ratio during the first quarter of 2023 was 7.0 History suggests that when pre-plant corn futures prices are this high in relation to cotton futures , we could expect cotton planted acres no higher than ten million acres, all other things being equal (see the graph below). There are other influences of course, including how dry it is in Texas, the insurance price level (in the low/mid 80s), fixed cost influences, and the psychological influence of the preceding growing season. But the price ratios for competing crops imply relatively smaller plantings of U.S. cotton, year over year.
The various milestone projections of U.S. cotton planted acreage are out there, and they all exceed my expectations based on relative price comparisons. Cotton Grower magazine was first out of the chute with their estimate of 11.57 million acres of U.S. all cotton. Then in February the National Cotton Council’s planting intentions survey indicated 11.4 million acres. Then USDA assumed 10.9 million acres at their mid-February Agricultural Outlook Forum. Then USDA NASS measured 11.3 million acres in their March 31 Prospective Plantings. The latter is what was assumed for the May WASDE forecast of U.S. production. The remaining planted acreage benchmark is USDA’s Acreage report on June 30. For the week ending May 21, the actual pace of U.S. cotton planting was 45% planted, which is five percentage points below the five year average.
The weather in 2023 is a major consideration, as it always is. As we enter summer, NOAA forecasts the current ENSO-neutral conditions to transition to an El Niño condition, implying wetter and cooler than normal conditions. NOAA further expects the El Niño condition to persist this winter at a very high probability. Whether or not this benefits the 2023 crop depends on the timing. With more certainty, the southern plains started off with little soil moisture. April and May have seen repeated rains over Texas. For the latest regional summaries, click here and scroll down. See also this map of 7-day cumulative rainfall. Still, the recent rains don’t remove the seasonal production uncertainty. The range of planted acreage and resulting abandonment leaves a wide range of possible outcomes for U.S. production, as penciled out below in Table 1. Until the market figures out the supply picture, there is the possibility for weather market volatility in prices during this growing season.
Meanwhile, the combination of carry-in, March 31 plantings, and May WASDE new crop projections results in the balance sheet numbers in the right hand side column of the chart below, which represents a similar endings stocks outcome, year over year. If realized, that implies a relatively flat seasonal pattern for Dec’23 ICE cotton futures. e.g., between 77 and 89 cents.
