A Year Of Good Yields And Prices

Farmers Across The Cotton Belt Reap The Benefits Of A Bountiful Harvest And Strong Market

• By Yangxuan Liu,
University of Georgia •

cotton marketing chartEvery year in October and November, harvest approached across the Cotton Belt. This year was no exception, as cotton producers worked to wrap up this busy time and enjoy the payoff of their hard labor. The 2021 cotton harvest combined both good yields and good prices, which is rare for cotton producers.

The U.S. Department of Agriculture Crop Progress report, released Nov. 8, indicated 98% of cotton bolls opened nationwide, with 55% of cotton acres harvested. Cotton conditions have remained steady this year, with more than 60% of the crop rated good to excellent compared to last year, when only 37% rated in good to excellent condition.

The November USDA World Agricultural Supply and Demand Estimates report projected 2021 U.S. cotton production at 18.2 million bales. This is slightly over the U.S. cotton demand — 15.5 million bales of exports and 2.5 million bales of domestic mill use. This year’s national yield level is at 874 pounds per acre, which is the second highest on record.

The U.S. ending stocks-to-use ratio is forecast at 18.9% for the 2021/22 marketing year, slightly above last season but below the previous three years.

Global Snapshot

Globally, 2021 cotton production is projected at 121.8 million bales, which is 9.6 million bales more than last year. World cotton mill use is projected slightly higher than production at 124.1 million bales, 3.2 million bales above last season and the second largest on record.

Current global and domestic supply and demand fundamentals do support high cotton prices.

However, it is hard for the cotton supply and demand fundamentals to explain the recent price surge. Since the middle of September, cotton prices have skyrocketed, with December Futures rising from mid-90 cents per pound to a high of $1.22 per pound Nov. 2. If supply and demand fundamentals cannot explain the price increase, then what could be the cause of the recent price surge?

Stocks And Futures

Historically, cotton prices tend to follow the stock market — with an increase in cotton prices when the stock market rises and a decline in cotton prices when the stock market drops. After the pandemic unfolded, cotton markets have been on an upward trajectory since April 2020, with a recovery of futures prices from the low 50 cents per pound to more than $1 per pound that began in October.

Since September of this year, the stock market has been on a roller coaster ride with ups and downs. This created uncertainties for investors concerned about the next stock market price drop. Some investors pulled their money out of the market, seeking the next opportunity for a short-term gain.

Under the circumstances, other markets, such as the cotton futures market, experienced an inflow of speculative money, pushing prices higher. This money flow has pushed cotton prices to levels that exceed those indicated by supply and demand fundamentals, creating a potential marketing opportunity for cotton producers.

Marketing Tip

However, the flow of money in and out of cotton markets can also make prices unpredictable and volatile. Thus, it is difficult for producers to predict the direction cotton prices will take.

Speculative money could continue to push cotton prices higher. However, when speculative money leaves cotton markets, prices will fall sharply (possibly with a temporary correction below the price supported by global cotton supply and demand fundamentals).

For now, producers may want to consider completing 2021 crop marketings at very profitable levels.

Dr. Yangxuan Liu is assistant professor, Agricultural and Applied Economics Department, University of Georgia. Contact her at Yangxuan.Liu@uga.edu or 229-386-3512.

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