U.S. cotton production is typically uncertain in any given year, in part because roughly half the acreage is in Texas. Still, the 2023 season is starting off with a more than usual degree of uncertainty.
First, the early season forecasts of U.S. cotton plantings vary by as much as two million acres, i.e., from 9.5 to 11.5 million acres. Such a discrepancy puts a premium on the milestone planting intentions reports from the National Cotton Council (released February 12) and USDA (March 31 Prospective Plantings report and June 30 Acreage report).
The weather is a second major source of variability. The National Oceanic and Atmospheric Administration’s Climate Prediction Center (CPC) is forecasting a transition from the hotter/drier La Niña condition to a neutral influence by late Spring. CPC further predicts the onset of the cooler/wetter El Niño condition by early Fall. That’s all well and good, but there is uncertainty around all weather forecasts. Will the beginning dryness lead to above average early season abandonment? Or will neutral El Niño-Southern Oscillation (ENSO) conditions by planting time surprise us with timely planting rains and good growing conditions?
The third consideration is whether the recent signs of improving cotton demand will continue. There is plenty of uncertainty about whether the broader economy is recovering or entering a double dip recession.
These three variable situations outline some possible extremes. If, for example, U.S. cotton growers plant a low level of acreage, and it continues dry, and abandonment is above average, and demand continues to recover, the result could be ending stocks below 3 million bales. Historically, it suggests that Dec’23 futures might follow the seasonal path of the green line in Figure 1, strengthening as the growing season goes on. In the context of this year’s price levels, it suggests a march back up through the 90s towards a dollar.
On the other hand, what if 11+ million acres are planted and receive timely rains? That could lead to three million more bales of production than the first scenario. If demand doesn’t recover enough to absorb these bales, the carryover outcome could be five or six million bales. In years of building excess stocks, the historical seasonal average of December ICE futures reflects weakening prices. The pattern of the blue line in Figure 1 could push prices under 80 cents.
Figure 1’s red line reflecting “Stable Carryover” years is simply the in between scenario, with middling implications for ending stocks and prices. The level of these seasonal averages isn’t as important as the pattern itself. Time will tell how all these variables play out.
Figure 1. December Futures Seasonal Average Price in Stable, Larger and Smaller Carryover Years
Author: John Robinson
Professor and Extension Economist
Cotton Photo by Mark Stebnicki: https://www.pexels.com/photo/plantation-of-cotton-in-a-cropland-10287687/