Dr. Gary Adams, Vice-President of Economics for the National Cotton Council, says 2011 was an unusual year. Cotton prices reached their highest levels since The War for Southern Independence – and some growers experienced some of the worst growing weather ever:
“And still, it really, even though it declined, it stayed at very high levels. I guess, whether you consider that a good year depends on your perspective, if you’re a grower, certainly you welcomed those high prices and the opportunity to market your cotton at those high levels, if you’re a textile mill on the end-use side, it put a lot of pressure on you as you were paying those higher prices and whether you had the ability to pass that along in higher cost.
From the production standpoint, there were certainly a lot of challenges although the yields turned out to be reasonably good, considering the circumstances in most parts of the Belt, with the exception of the southwest, in particular Texas. You know, it was a mixed bag in terms of how you look back and view 2011.”
Adams says Texas – the largest cotton growing state in the country – was naturally the focus of 2011:
“And when you look at 45 to 50 percent of cotton acres being in Texas, I mean they’re going to be a key in terms of what overall US production does. But, they’ve seen certainly the gamut of it with that severe drought that they’ve been in and still continue to be in, that’s going to raise some questions as we ahead to 2012.
It could affect prices, I mean I think there’s a lot of things going on, when we look at the current price situation and they have declined from the highs that we observed back in the spring, I think a lot right now, hinges on where demand is. I think that’s….when we talk about price direction that’s a factor number one. Because even though we had a lower crop in Texas, we still had a large crop internationally, and so I think from the standpoint of available supplies, the market feels reasonably comfortable that the cotton is going to be there as we go through the winter. I think the question is what strength do we have in demand.”
Adams says China remains the 800 pound gorilla for the cotton industry:
“China….I mean given their policy decisions that they’ve made over the last year, all of those are affecting the world market. Right now, the role China is playing is really putting some short-term support under prices because they are being an aggressive buyer and importer of cotton, even US cotton. We know that the Chinese government is actively trying to rebuild their cotton reserves so they’ve purchases several million bales of cotton through the fall, and that is providing some short-term support.
I think the question will be when we look longer term is we factor in what happens in the latter part of 2012 how long does that buying continue? And then what happens when eventually they’re no longer buying to build their reserves, does that take some steam out of the market?
I wouldn’t necessarily lean toward fairly rosy, I think the concerns and the clouds that are out there are on the demand side, and it starts going all the way back, not just to cotton demand but to the general economy. You know, there’s a lot of nervousness just in the overall financial situation; credit constraints, concerns about the European economy, concerns about how the consumer deals with those economic conditions. So, at this point I think that is where the concerns lie.”
Adams made those remarks during the Beltwide Cotton Conference going on in Orlando through today.