Friday, December 17, 2010

Cotton Market Update - Bob Goodman

As I write this last Cotton Economics Update of my career, the Dec 2011 contract is just a tick below 97 cents. Prices for all our commodities are just amazing, and seem to be supported by the fundamentals. However, the only USDA statistic I wish to comment on is the projected 1.9 million bale domestic ending stocks for the 2010-2011 crop. As you know, that number is a record, at least since 1965, and anything older than that doesn’t matter. Last years number was 2.9 and there have never been two consecutive years with less than 3 million bales of carryover. The US cotton fundamentals are in uncharted territory, but on the plus side for once. Having spent most of my career with cotton around 50 cents, this is wonderful. If I had known this was going to happen, I might have stuck around another year. Remember, in 2001 the season average price for cotton received by farmers was 32 cents.

In my last column I parroted the advice of other market commentators who advised farmers to lock in some prices on next year’s product as well as the inputs especially fertilizer and fuel. I just want to add here a comment about a conversation we had here at Auburn, sitting around at coffee break with Ron Smith, Dale Monks, Dennis Delaney, Austin Hagan, and all the crops gang. As you can imagine, we could only squeeze in a few minutes to talk about the crop between sessions on Cam Newton and the coming championship bowl game. But I think two thoughts the specialists had regarding the coming year bear repeating here.

First, obviously prices are good. It will take less cotton to pay for a crop protection product than ever before. The rewards for good crop management have never been higher. Mistakes have never been costlier. You should plan carefully and pay close attention to detail. Just as an example, and not to pick on anyone, but John Fulton, an Agricultural Engineer here, just showed me some data from a cotton conservation tillage / plant population experiment. It was a good idea for an experiment, but the final plant populations were so far from the intended target that the results were perhaps less useful than they might have otherwise been. All I’m saying is that it’s easy to mess up, and some things can’t be fixed. Put yourself in a position to make top yields. Cover the basics; fertility, variety, timeliness, pest control.

Second, there will be opportunities to waste money on this crop. This is never a good idea. I will go out on a limb here in my last column and say that my personal recommendation is that you should not even consider any product without an extensive research pedigree from your own State Land Grant University. If you choose to buy and apply such products, I would offer you the same assessment that Dale Monks commonly offers in these situations: “It doesn’t cost much and it probably won’t hurt your crop”.

Bob Goodman, Retired Cotton Economist, Formerly Auburn University, with thanks for all the help and friendship. I don’t know what I’m going to do next, but I hope to try something where people are glad to see me when I show up. Thus, it will probably not involve agricultural economics.