2023/24 Fundamentals, Outlook, and Caveats

For planning purposes, it’s never too early to be thinking about the upcoming crop season’s opportunities and risks. To begin with, the (still uncertain) size of the 2022 crop will influence the supply of next year’s balance sheet in the form of carry-in stocks.

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).  History suggests that when pre-plant corn futures prices are this high in relation to cotton futures , we could expect cotton planted acres around 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, how high the insurance price is, fixed cost influences, and the psychological influence of the preceding growing season.  But there is some basis for expecting a relatively smaller plantings of U.S. cotton, year over year.

As always during volatile weather markets, the early milestone supply and demand reports will be important to anticipate and plan around. Cotton Grower magazine is already out with their estimate of 11.57 million acres of U.S. all cotton.  The upcoming reports include:  1) National Cotton Council’s planting intentions survey, released in February 12, 2) early USDA forecasts at their February Agricultural Outlook Forum, 3) USDA’s Prospective Plantings report on March 31, and 4) USDA’s Acreage report on June 30.  If any of these reports project a surprisingly low planted acreage number, that could trigger a price rally — especially if it is coupled with more evidence of improving demand.

 

Comments are closed.