2005 Cotton Situation, Outlook and

Management StrategiesCharles Curtis, Jr

Applied Economics & StatisticsClemson University

U.S. Cotton Planted & Harvested Acres

y = 0.0675x + 13.673

0.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

16.0

18.0

Year

Mil

lion

Acr

es

Planted Harvested Linear (Planted)

Planted 12.4 14.1 13.2 13.4 13.7 16.9 14.6 13.9 13.4 14.9 15.5 15.8 14.0 13.5 13.7 13.5

Harvested 11.7 12.8 11.1 12.8 13.3 16.0 12.9 13.4 10.7 13.4 13.1 13.8 12.4 12.0 13.1 12.0

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

Prospective 2005 U.S. Cotton Crop

2004 2005 % Δ

SOUTHEAST 2,956 2,862 -3.20%

Alabama 550 530 -3.60%

Florida 89 84 -6.10%

Georgia 1,290 1,268 -1.70%

North Carolina 730 702 -3.90%

South Carolina 215 201 -6.30%

Virginia 82 78 -5.30%

National Cotton Council Survey 2/19/05

National Cotton Council Survey 2/19/05 (cont.)

Prospective 2005 U.S. Cotton Crop

2004 2005 % Δ

MID-SOUTH 3,430 3,664 6.80%

Arkansas 910 926 1.70%

Louisiana 500 576 15.30%

Mississippi 1,110 1,199 8.10%

Missouri 380 418 10.00%

Tennessee 530 544 2.70%

National Cotton Council Survey 2/19/05 (cont.)

Prospective 2005 U.S. Cotton Crop

2004 2005 % Δ

SOUTHWEST 6,155 6,183 0.50%

Kansas 85 95 11.90%

Oklahoma 220 235 6.90%

Texas 5,850 5,852 0.00%

National Cotton Council Survey 2/19/05 (cont.)

Prospective 2005 U.S. Cotton Crop

2004 2005 % Δ

WEST 868 770 -11.30%

Arizona 240 214 -10.70%

California 560 478 -14.70%

New Mexico 68 78 15.10%

TOTAL UPLAND 13,409 13,479 0.50%

TOTAL ELS 250 255 2.30%

ALL COTTON 13,659 13,734 0.60%

U.S. Cotton Yield

y = 6.0956x + 617.13

400

450

500

550

600

650

700

750

800

850

900

Year

Pou

nds

per

Acr

e

Yield Trend

Yield 634 652 699 606 708 537 707 673 625 607 632 705 665 730 846 710

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

U.S. Cotton Production & Total Supply

0

5

10

15

20

25

30

Year

Mil

lion

Bal

es

Production Total Supply

Production 15.50 17.61 16.22 16.13 19.66 17.90 18.94 18.79 13.92 16.97 17.19 20.30 17.21 18.26 23.01 17.80

Total Supply 18.50 19.95 19.92 20.80 23.21 20.96 21.95 22.78 18.25 21.00 21.13 26.32 24.72 23.69 26.55 25.10

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

U.S. Domestic Use

8.7

9.610.3 10.4

11.210.6

11.1 11.4

10.4 10.2

8.9

7.77.3

6.5 6.36.0

y = -0.28x + 565.02

0.00

2.00

4.00

6.00

8.00

10.00

12.00

14.00

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

Million Bales

Yea

r

Dom. Use Trend

U.S. Cotton Exports

7.79

6.70

5.20

6.86

9.40

7.68

6.877.50

4.34

6.75 6.76

11.00

11.90

13.7613.00

13.50y = 0.46x - 902.38

0.00

2.00

4.00

6.00

8.00

10.00

12.00

14.00

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

Export Trend

Export Wildcard

U.S. Total Cotton Disappearance

0.00

5.00

10.00

15.00

20.00

25.00

Year

Mil

lion

Bal

es

Dom. Use Export

Export 7.79 6.70 5.20 6.86 9.40 7.68 6.87 7.50 4.34 6.75 6.76 11.00 11.90 13.76 13.00 13.50

Dom. Use 8.66 9.60 10.25 10.42 11.20 10.60 11.13 11.35 10.40 10.24 8.88 7.70 7.27 6.49 6.30 6.00

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

End Stocks & Stocks-to-Use

14.2%

22.4%

30.2%

20.4%

12.9%14.3%

22.1%20.6%

26.7%

23.1%

38.4%39.8%

28.1%

17.3%

37.8%

28.7%

0.00

1.00

2.00

3.00

4.00

5.00

6.00

7.00

8.00

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

Year

Mil

l B

ales

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

35.0%

40.0%

45.0%

S/U

%

End Stks S-to-U

Cotton Stocks-to-Use & Farm Price

14.2%

22.4%30.2%

20.4%

12.9%14.3%

22.1%

20.6%

26.7%

23.1%

38.4%

39.8%

28.1%

17.3%

37.8%

28.7%

y = -1.1603x + 0.8564

R2 = 0.6847

$0.00

$0.10

$0.20

$0.30

$0.40

$0.50

$0.60

$0.70

$0.80

5.0% 10.0% 15.0% 20.0% 25.0% 30.0% 35.0% 40.0% 45.0%

Stocks-to-Use (%)

Pri

ce (

$/lb

)

Price Trend

Probability That Futures Price Will Be Less Than:

2.7%8.6%

19.3%

33.9%

50.0%

65.1%

77.4%

86.4%92.4%

96.0%

0.5%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

$0.36 $0.40 $0.44 $0.48 $0.52 $0.56 $0.59 $0.63 $0.67 $0.71 $0.75

Futures Price at Option Expiration

Cu

mu

lati

ve

Pro

ba

bili

ty o

f F

utu

res

Pri

ce

Oc

cu

rrin

g a

t E

xp

ira

tio

nDec 05 Probabilities

SEASONAL PRICE TENDENCIES1997-2002

JanFeb

Mar

Apr

MayJun

Jul Aug

Sep

OctNov

Dec

85

90

95

100

105

110

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

% o

f S

easo

n A

vera

ge

Pri

ce

Source: G. Shumaker, UGA

Crop: Cotton PCP Basis: -$0.10 Harvest

Loan Rate: $0.52 Increment: $0.01 Futures: $0.30

Harvest Predicted Harvest Predicted Harvest Predicted

Futures LDP Futures LDP Futures LDP

$0.30 $0.32 $0.44 $0.18 $0.58 $0.04

$0.31 $0.31 $0.45 $0.17 $0.59 $0.03

$0.32 $0.30 $0.46 $0.16 $0.60 $0.02

$0.33 $0.29 $0.47 $0.15 $0.61 $0.01

$0.34 $0.28 $0.48 $0.14 $0.62 $0.00

$0.35 $0.27 $0.49 $0.13 $0.63 $0.00

$0.36 $0.26 $0.50 $0.12 $0.64 $0.00

$0.37 $0.25 $0.51 $0.11 $0.65 $0.00

$0.38 $0.24 $0.52 $0.10 $0.66 $0.00

$0.39 $0.23 $0.53 $0.09 $0.67 $0.00

$0.40 $0.22 $0.54 $0.08 $0.68 $0.00

$0.41 $0.21 $0.55 $0.07 $0.69 $0.00

$0.42 $0.20 $0.56 $0.06 $0.70 $0.00

$0.43 $0.19 $0.57 $0.05 $0.71 $0.00

$0.44 $0.18 $0.58 $0.04 $0.72 $0.00

Predicting Harvest Time Loan Deficiency Payments

Returns for Different Price Levels with LDP:

$0.37

$0.47

$0.57

$0.67

$0.77

$0.87

$0.36 $0.40 $0.44 $0.48 $0.52 $0.56 $0.59 $0.63 $0.67 $0.71 $0.75

Futures Price Levels

Str

ateg

y R

etu

rn

Cash Sale at Harvest Basis Contract Futures Hedge

Forward Contract (CFC) Put Option Call Option

Cotton Marketing with LDP’s

Summary

2004 left 2005 with excess supplies Plantings up slightly – Yield? 2005 Use expected:

Reduced US use Increased Exports (CHINA!!!!)

Current S&D would forecast 52¢ price Smart Marketing could yield much

better!