By Dr. Don Shurley
For producers still holding a portion, or all, of last year’s crop, so far it’s been a mostly unrewarding ride. Prices are a few cents higher, but essentially at the same level they were in October and early November. Merchants are now buying the crop basis the July futures contract, which is roughly 66 cents and change.
Since the first of the year, we’ve seen three “bottoms.” Each has been at a progressively higher price. That’s an encouraging sign. Each recovery, at least to date, however, has still been unable to break through the ceiling at around 66 to 67 cents. July is currently testing this ceiling for the third time.
New crop December15 futures are currently also around 65 to 66 cents. There has been little, if any, incentive for producers to do much of anything with regard to pricing this year’s crop, and I doubt much has been done. Prices have been stuck in a five cent band between 62 and 67 cents. Should economics ever dictate that we pull out of this rut, the target/objective would likely be the 70 cent area.
Crop Progress and Weather. This week’s crop progress numbers from USDA show the cotton crop 10 percent planted as of April 26. The historical average for this date is 16 percent. Rainfall and wet field conditions have hampered planting in some areas of the Mid-South and Southeast, and Texas is also behind schedule. For the most part, the planting window and delay is not yet a reason for concern. Producers can get caught up if the weather cooperates.
Substantial rainfall (as a percent of normal) over the past 14 days has been received along the Texas Coastal Bend area. To a lesser extent, beneficial rainfall has also been received in the Texas Plains. Rainfall has been above normal for most of Texas, the Mid-South and the Southeast. Rainfall has been 1 1/2 to over six times the normal amount in some areas. In what has been a wet spring for many producers, this has slowed planting, delayed application of herbicides to crops already planted, and may have resulted in some shifts in acreage.
The Seasonal Drought Outlook (for the period through July) calls for drought conditions to lessen in some parts of Texas, including portions of the Panhandle. Drought conditions are also expected to improve in southeast Alabama. The drought, however, will continue in California and parts of Arizona and New Mexico.
Analysis and Outlook. Time is running out for old-crop. Exports have been very good and the Basis and demand for good quality. A very strong export report last week is, in part, reason for the present surge. I continue to believe that any remaining 2014 crop – or at least portions of it – should be sold on rallies to this 66 to 67 cent area.
There continues to be talk of prices eventually moving to challenge the 70 cent area. Is this possible? Yes. But I don’t know that I’d risk a large portion of my crop on that.
In the Southeast, the “total money” for good quality 31-3/35 cotton is currently about 73 cents, including the Marketing Loan Gain (MLG). The MLG is currently 3.44 cents through the close of business on April 30. The rally in the market in recent days is a good opportunity to increase your “total money.” The MLG will go down next week unless prices falter the remainder of the week.
July Futures (4/47) 66.23
SE Basis (41-4/34) 0.00
Premium (31-3/35) 3.25
MLG (4/24-30) 3.44
Total 72.92
Some producers took the POP/LEP last fall and have been storing some, most or all of their cotton. These rallies are good opportunities to begin to sell off that cotton.
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