Increased backend to raise 2008 acreage - Cotton Forum
14 Jul '07
4 min read
Additionally, it was noted that the current twelve cent plus price rally has come despite the concern of a 52 million bale world carryover and accompanied by certificated stocks above 700,000 bales. The world remains flush with cotton supplies and the U.S. is the only country that will experience a decline in production in 2007.
Western growers, to obtain a 1200 point equity payment; need to see the December 2008 contract reach near 78 cents. Likewise, Southeastern growers need to see the same price level to turn their heads from wheat and some oilseed wheat double crop patterns. Various Midsouth and Southwestern growers need to see 72-74 cents to hold acres while 75 cents will be necessary generate any interest in increasing acreage.
Further, many Southeastern and Midsouth growers sold much of the cotton equipment infrastructure and will be reluctant to make the capital expenditure necessary to return to cotton. Thus, the price expectation for December 2008 must be 75-78 cents to encourage a two million acre increase in plantings.
The December 2008 contract, currently at 72 cents, is simply not high enough to buy the necessary acreage for 2008-despite the expectation that both India and China will likely see increased 2007 and 2008 production.
The Forum concluded with speakers feeling that growers should seriously consider locking in the current price in the very near future-most likely in the following one to two weeks at the latest.
Speculators have, most aggressively, pushed prices higher over the past two months. Over this period, there has been little to no change in world cotton fundamentals. The speculative bubble in the December 2007 contract will burst; it is just a question of how soon. Nevertheless, speculative funds and fundamental traders will participate in pushing the December 2008 contract higher.
The farm bill and the upcoming WTO decision loom in the background of all of this. Yet, the bottom line is that current conditions strongly suggest fixing the 2007 market price in either the cast market or the options market in very short order.
marketing@alchempro.com
