Bacon County Ag Update

Cotton Market News

This is an excerpt from the Cotton Market News.  Follow the link for the full edition.


The 2016 crop is currently estimated at 17.23 million bales. Acreage abandonment has been low for 2 consecutive years—5½ % for the 2016 crop and 6% for 2015. Assuming 11.5 million acres planted (14% more than last year) the US crop could be equal to or less than last year if abandonment is more normal—depending on yield.


Is it likely that 2017 crop prices could eventually come under pressure if the expected crop is large due to even more acres planted or good progress and conditions. Of course, this could be offset by continued strength in exports and US market share.

With new crop Dec futures in the 75-cent area, I know producers are considering taking protection. Some already have even when prices were 72 to 73.


Although basis obviously varies and has weakened recently, here in the Southeast the basis for 41-4/34 has averaged about even the futures and premiums for 31-3/35 or better have been around 200 to 250 points.


Forward (fixed price) bale contracts at an even or better basis the Dec futures provide a good opportunity. One concern, however, might be whether or not the contract will pay premiums for Color and Staple. If not, producers could see this as a deterrent unless the basis is very good.


If you want to take protection but retain the opportunity to do better if prices were to increase, you can do that with a minimum price contract or a Put Option. On a minimum price contract, typically the basis is not going to be as good and with a Put, you have to pay the premium. But in both cases, you could benefit if prices go up. With a Put, you could possibly recoup the cost of the premium by being able to sell your cotton on the spot market and capture quality premiums not offered on a contract.


OK, I was asked where I would be on 2017 pricing. I tend to be fairly conservative and cautious in my outlook. For 2017, I want some 80-cent cotton if it gets there but I don’t want to be stuck with the majority of my crop to sell if the market dips to 68 or below. Right now, I believe I would be 1/3 in at this point.


But decisions should be consistent with your attitude toward risk and your willingness and ability to take risk.