Is the Cotton Market Headed for a Boom or Bust? Economist John Robinson Crunches the NumbersFri, 19 Jan 2018 15:53:33 CST
To the surprise of those in the industry, cotton markets are performing well for this time of year. Typically, the market will be subject to seasonal weakness beginning in and around November. However, this past November gave way to an unexpected rally in cotton that has continued into the new year.
“The apparent reasons related to that are export demand, but what is also clearly underlying that is a buildup of speculative buying by hedge fund managers, particularly, who have bought a whole bunch of cotton futures and are holding onto them,” explained Texas A&M Extension Economist Dr. John Robinson to Radio Oklahoma Ag Network Associate Farm Director Carson Horn during the Red River Crops Conference in Altus, Okla. “I think they may continue to hold them on into the spring until some situations get resolved involving contracts between merchants and mills and associated futures buying.”
Listen to Robinson and Horn discuss the current cotton market situation and his thoughts on whether or not this next crop will pay out for farmers, by clicking or tapping the LISTEN BAR below at the bottom of the page.
Robinson went on to say that he believes these speculators expect that buying to happen and are jumping in before it does, to benefit from the upward trend.
However, Robinson says this situation lacks long-term certainty and believes there to be some downside risk associated with it.
“When lay out the long-term fundamental picture, it pencils out to heavier, longer increasing ending stocks of cotton,” Robinson said. “That is ordinarily a prescription for lower prices. So, what I’m afraid might happen is that we’ll have this sort of unusual period of high prices - but then that will downshift into a lower price situation.”
Despite his worries, though, Robinson says export sales seem to be driven by relatively strong demand, which is almost remarkable given that prices have been going up. But, with cotton acres expected to increase by almost another million acres from last year’s near 12 million planted acres, the question of whether or not there will be enough demand to support farmers’ expectations of profitability is still up in the air.
“That really remains to be seen. I would say yes there is - that the world situation is unfolding and improving and I’m a little bit more cautious,” he said. “But, we could be in a situation where if we have a larger excess of supplies then that’s basically saying, ‘no, there is not enough demand.’ All ag commodities are sort of a boom and bust sort of proposition and this is an example of it. Are we leading to a bust or is the situation changing as we speak to improve it enough…? It remains to be seen.”
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