Higher Prices? Don't Get Spooked Yet: Market Analysis for US Cotton Growers

Despite the very bearish USDA June plantings report, the potential for higher 2024 crop prices remains on track. Recall that we warned that higher prices would come slowly, very slowly, and only bit by bit. Despite the report indicating that 11.67 million acres were planted to cotton across the U.S., most of the increased acreage was planted in the vast dryland of the Southern Plains, an area very susceptible to drought. Prospects for an average crop are dim as the region is very deficient in the moisture needed to produce an average crop, much less a bumper crop.

However, there is time. While the plantings report surprised the market, prices somewhat recovered and settled the week at 72.69, basis December. The larger plantings do open the door for a price scare down to 70 cents and slightly below. If we want to see December futures fall below the 70-cent mark, we must overcome weather problems across the cotton belt. That possibility is real, and the market will keep a keen watch on crop progress and moisture.

📸: @Bastian Riccardi via Canva/Featuring withered cotton.

Dissecting the USDA June Planting Report: Acreage Increase by Region

USDA’s June plantings report estimated 2024 cotton plantings at 11.67 million acres, up 3.8%, or one million acres, from the March planting intentions estimate. The million-acre increase, while unexpected, noted Southeastern plantings at 2.37 million acres, up 40,000 from the March estimate. Mid-South plantings totaled 2.01 million acres, up 140,000 acres from March intentions. Most of that increase was in Arkansas. The principal increase, 860,000 acres, came in the Southwest, where plantings were estimated at 6.97 million acres. Texas accounted for that increase. Far West plantings were only 138,000 acres, 22,000 below the March estimate. Pima plantings were estimated at 182,000 acres, down 21,000 acres from March intentions.

Market Reaction & Potential Price Impact of Increased Plantings

The increased plantings will lead USDA to increase its estimate of U.S. production from its current estimate of 16.0 million bales to some 16.6 million bales, accounting for abandonment, weather conditions, and crop progress. Thus, its estimate for exports would increase from 13.0 to 13.3 million bales, with carryover increasing to 4.4 million bales. The initial price impact of the increased carryover would tend to push the New York ICE contract some 3 cents lower (lower than the pre-report trading range) or down to the 71-72 cent level. However, the July supply demand report is set to be released on July 12, and many feel USDA will lower its export estimate, thus increasing carryover by a similar amount, possibly as much as 400,000 bales.

Weekly Export Sales & The Road Ahead for Cotton Prices

The weekly export sales report was as expected. Net sales in Upland totaled 93,600 bales, which is not disappointing as year-end sales are always somewhat small as mills focus on spinning needs for the coming six months. Not so for shipments. Year-ending shipments did, in fact, disappoint. However, a reduced export estimate is already somewhat factored into the market price.

📸: @BrandonJ74 via Canva/Featuring a cotton field in West Texas at sunset.

A Glimpse of Hope: Why Higher Prices May Still Be on the Horizon

The lower export estimate, coupled with the potential for a larger crop, will continue to add bearish pressure through the month of July. The market will be challenged to protect its 70-cent price support level. Chinks in the bear’s armor continue to exist. Mills, while not aggressive, are beginning to fill some limited yarn orders and are willing to bid for cotton. However, they are some 2–3 cents below the market. Thus, the combination of these factors does suggest a price drop as low as 68 cents. Yet, December’s slow trek to higher prices is only delayed until August.

This content is being brought to you in partnership with Grow Smart Live and Guest Contributing Writers. BASF provides the information in this article as a service to its customers; however, the views expressed by guest writers are their own and do not necessarily reflect the views of BASF. The information contained in this article is not intended as, and should not be construed as, financial advice. It is not a substitute for financial advice from a professional who is aware of the facts and circumstances of your individual situation.