![\"\"](\"https:\/\/amarillo.tamu.edu\/agecon\/files\/2022\/02\/DSC_9561-300x195-1.jpg\")
Today we spend a bit of time on the cotton market. USDA’s Outlook Forum last week presented a case for relatively high prices against the historic average, though slightly lower year over year.<\/p>\nToday we spend a bit of time on the cotton market. USDA’s Outlook Forum last week presented a case for relatively high prices against the historic average, though slightly lower year over year.<\/p>\n
<\/p>\n
<\/p>\n
<\/p>\n
![\"\"](\"https:\/\/amarillo.tamu.edu\/agecon\/files\/2022\/02\/Screen-Shot-2022-02-27-at-9.09.12-PM.png\")
<\/p>\n
2\/28\/2022 – Spring Ag Conference, Armstrong County<\/p>\n
3\/1-2\/2022 – High Plains Dairy Conference<\/p>\n
3\/3\/2022 – Spring Ag Seminar, Clay County<\/p>\n
3\/3\/2022 – Northeast Panhandle Crops Conference<\/a><\/p>\n 3\/9\/2022 – North Region Production Education Online<\/a><\/p>\n 3\/11-12\/2022 – Southwest Beef Symposium<\/a><\/p>\n 3\/15\/2022 – ARC\/PLC Sign-up Deadline<\/p>\n 3\/17\/2022 – Briscoe County Cattle Program<\/p>\n 3\/23,30, 4\/6,13\/2022 – Master Irrigator\u00a0<\/a><\/p>\n 3\/25 – 3\/27\/2022 – TSCRA Convention\u00a0<\/a><\/p>\n 4\/26-27\/2022 – Hemphill County Beef Conference<\/a><\/p>\n Maximizing crop profits under limited water<\/a> – AgriLife Today<\/p>\n What’s at stake for global economy as Russia standoff escalates?<\/a> – Farm Progress<\/p>\n USDA cuts corn, raises soy and wheat acre for 2022<\/a> – Farm Futures<\/p>\n Putin attacks Ukraine: How will war in Eastern Europe impact your business?<\/a> – Farm Futures<\/p>\n Study explores impact of plant-based meat alternatives on cattle industry<\/a> – Beef<\/p>\n New report provides assessment of proposed Senate bill for cattle industry<\/a> – AgriLife Today<\/p>\n Two major estimates of U.S. cotton production were released by National Cotton Council (NCC) and the USDA. Each source reported an expected increase in cotton acres, though USDA forecasts a greater increase in acres year over year than does NCC. The NCC results suggest that both the Mid-South and the Southwest are expected to increase cotton plantings in the neighborhood of 300 thousand acres (Table 1). USDA projections suggest a 13.2% increase in total cotton planted acres year over year. The end results are the same; we expect substantially more cotton acres year over year.<\/p>\n On the other side of the production equation, abandonment and yield (Graph 1) are both forecast up year over year. A forecast of (and existing) poor subsoil moisture on the Southern Plains during planting and emergence led USDA to forecast an increase in abandonment percentage, ostensibly in Texas, Kansas, and Oklahoma. At the same time, projected yield on harvested acres are forecast up 0.8% year over year, once the abandoned acres are thrown out.<\/p>\n All told, cotton production is forecast up 3.3% year over year, from 17.62 million bales to 18.2 million bales, a bearish signal that seems to be borne out in the currently inverted ICE cotton contracts.<\/p>\n The U.S. Department of Agriculture\u2019s (USDA\u2019s) first 22\/23 world cotton projections anticipate that global consumption will exceed production, reducing world stocks by 2.5 million bales. China, the major importer of U.S. cotton, is expected in increase its imports from the 21\/22 forecast levels as the global demand for textiles continues to recover post-pandemic. At the same time, global cotton production is forecast down year over year by approximately 3.2%.<\/p>\n Chinese imports of cotton have increased relatively steadily since 2015, with a marked slow-down as a result of the pandemic. Since the recovery from the pandemic began, however, Chinese cotton imports have rebounded to their previous rate. At the same time, the disruption of cotton shipments from the Xinjiang province of China, resulting from purported human rights violations, has led to a squeeze on global cotton supply.<\/p>\n <\/p>\n As a result of an increase in purchasing power in many wealthy countries post-pandemic, the demand for global exports has risen, and is forecast to rise year over year. Much of that cotton comes from, and will continue to come from, the U.S. which is responsible for over 1\/3 of total global cotton exports.<\/p>\n Put together, U.S. cotton production is forecast up by 4.5% year over year, and total use is forecast up by about 4.9% year over year. With higher beginning stocks this year, total ending stocks are forecast up 0.1 million 480 lb. bales, which will pressure prices downward.<\/p>\n However, for the moment, old crop cotton prices are benefiting from supply chain struggles. A lack of truck drivers, cargo space on ships, and expensive transportation where it does occur is leading to an inability to get cotton from production regions to shipping hubs, and subsequently overseas to milling destinations. As supply chain issues sort out over the next year, some of the premium for cotton will likely dissipate.<\/p>\n One critical point to keep in mind when planning for cotton marketing is the war in Ukraine. Though neither Russia nor Ukraine are major importers or exporters of raw cotton, their conflict has the potential to have an outsized impact on cotton demand. If the flow of energy (natural gas, oil, etc.) slows from either of these countries we can expect some form of slowdown in global GDP. U.S. sanctions and countersanctions from Russia will almost certainly drive fuel price higher, exacerbating already excessive inflation. More expensive fuel means more expensive manufacturing, and more expense getting products to consumers; many economists are considering the possibility of a recession domestically. As we have said many times, cotton follows the economy as you can shown in the figure below. It is not a foodstuff, and its primary use in durable goods means that cotton demand is the often the first to go in a recession. This most recent move by Russia is not included in USDA’s recent supply, demand, and price estimates.<\/p>\n As we’ve discussed in this market update series, both ARC and PLC are not likely to pay in the upcoming year. Prices are much higher than recent historic averages, so much so that provision in the farm bill that allows for a change in the statutory reference price will likely increase the effective reference price in seed cotton. As of February 9, 2022, the projected effective reference price forecast by FSA was $0.4608\/lb. However, even with the increase in the effective reference price, cotton currently priced in the neighborhood of $1.00\/lb. is unlikely to trigger a PLC payment.<\/p>\n The dynamics are similar for ARC-CO. The table below shows county by county and practice (I=Irrigated, N=Nonirrigated, A=All Practices) the expected outcome for ARC-CO payments. The short story is that we do not expect ARC-CO payments to trigger. If prices remain in the neighborhood of $1.00\/lb., yields would need to be cut in half in order to trigger a payment.<\/p>\n STAX is an important insurance consideration for seed cotton producers. The Stacked Income Protection Plan (STAX) is a crop insurance product for upland cotton that provides coverage for a portion of the expected revenue for your area. STAX may be purchased on its own, or in conjunction with another policy referred to as a \u201ccompanion policy.\u201d There are important considerations to be made for the mix of base acres and safety net program choice (ARC\/PLC). For more information, check out this Southern Ag Today (SAT) article<\/a> on whether or not to buy STAX in 2022.<\/p>\n The Agricultural & Food Policy Center at Texas A&M University has developed a 2022 ARC-CO\/PLC Decision Aid (https:\/\/www.afpc.tamu.edu<\/span><\/a>). This decision aid will help you understand the probability of receiving a payment, and how your choices under the 2018 Farm Bill may affect your FSA payment based on your decisions and farm history.<\/span><\/p>\n","protected":false},"excerpt":{"rendered":"What We’re Reading<\/h3>\n
U.S. Cotton Production<\/strong><\/h3>\n
Table 1. Planted Cotton acres per Region. Source: National Cotton Council Grower Survey<\/strong><\/h4>\n
![\"\"](\"https:\/\/amarillo.tamu.edu\/agecon\/files\/2022\/02\/Picture2-1.png\")
<\/p>\nGraph 1. United States Cotton Yields: USDA NASS<\/strong><\/h4>\n
![\"\"](\"https:\/\/amarillo.tamu.edu\/agecon\/files\/2022\/02\/Screen-Shot-2022-02-27-at-10.52.58-PM.png\")
<\/p>\nInternational Market<\/strong><\/h3>\n
Graph 2. Leading Cotton Importers<\/strong><\/h4>\n
![\"\"](\"https:\/\/amarillo.tamu.edu\/agecon\/files\/2022\/02\/Leading_global_cotton_importers__2010-20-e1646025435205.png\")
<\/p>\nGraph 3. Leading Cotton Exporters\u00a0<\/strong><\/h4>\n
![\"\"](\"https:\/\/amarillo.tamu.edu\/agecon\/files\/2022\/02\/Leading-global-cotton-exporters-2010-20-e1646025474238.png\")
<\/p>\nEnding Stocks and Prices<\/strong><\/h3>\n
Table 2. Cotton Supply and Demand Projections<\/strong><\/h4>\n
![\"\"](\"https:\/\/amarillo.tamu.edu\/agecon\/files\/2022\/02\/Picture3-1.png\")
<\/p>\nWorld Cotton Consumption and Economic Growth<\/strong><\/h4>\n
![\"\"](\"https:\/\/amarillo.tamu.edu\/agecon\/files\/2022\/02\/Screen-Shot-2022-02-27-at-10.45.27-PM.png\")
<\/p>\nThe Cotton Safety Net, ARC\/PLC & STAX<\/strong><\/h3>\n
Table 3. ARC-CO Estimated District Summary – Cotton<\/strong><\/h4>\n
![\"\"](\"https:\/\/amarillo.tamu.edu\/agecon\/files\/2022\/02\/Picture1-2.png\")
<\/p>\n