January 4, 2012
Price drop to below US$1 per pound and increasing costs of key inputs such as fuel made US farmers to plant less cotton in 2012.
US cotton plantings will range from 12-13.5 million acres (4.9-5.5 million hectares), down 8% to 18% from last year's 14.72 million acres, industry participants forecast before the annual Beltwide Cotton conference here.
The drop in US cotton prices from record highs above US$2.20 a pound in March to around US$0.85 in December will make it difficult for cotton to battle corn and soy for acres, traders and analysts said.
"I don't think US$0.85 cotton can compete with corn and soy," Carl Anderson, an influential economist who is professor emeritus at Texas A&M University, said. "Cotton has also become a very expensive crop."
Prices have clawed back some lost ground, ending the year around US$0.91 per pound, but analysts said prices need to be above US$1 a pound before farmers would consider a return to cotton. And a recovery to that level may be unlikely in time for spring planting season from March to early June, they said.
"Cotton loses a lot of its attractiveness globally below US$0.85," said Mike Stevens, a long-time trader based in Mandeville, Louisiana, who now operates independently.
Consensus in the trade is for planted acreage in the US to fall by between 1.5 million and two million acres, he said. This would equate to a range of 12.72-13.22 million acres.
Cotton will also struggle to compete while soy prices are above US$11.50 a bushel and corn stays above US$6 a bushel, Peter Egli, director of risk management at trader Plexus Cotton Ltd, said.
"As long as soy can hold US$11.50 and corn can hold US$6, people will still go into corn or soy," he said. "This is not a convincing price for cotton."
Cotton futures were the weakest-performing commodity in 2011, losing over a third of their value from end-2010 levels. This is in stark contrast with its over 90% rise in 2010, when cotton was the second-biggest gainer in the commodity complex.
It is not just lacklustre prices that make cotton less appealing. Higher costs for equipment and fuel also make it more expensive for farmers to sow fibre.
A new cotton harvesting machine would cost some US$600,000, double the price of a comparable combine for corn, soy or wheat, Anderson estimated.
"That's too big an investment for farmers to think about," he said.
High fuel prices take a big toll on cotton farmers, who must use fuel-hungry harvesters and large amounts of fuel-derived fertilisers to boost yields, analysts said.
In arid areas such as Texas, the biggest cotton growing state, they also use deep fuel-fired wells to draw out irrigation water for their crops.
In 2011, farmers in the US planted 14.72 million acres to cotton, the highest in five years in direct reaction to prices hitting their highest level since the US Civil War in the 19th century. But the worst drought in a century in Texas and prolonged dry spells in Georgia, the No. two cotton state, led to nearly five million acres being abandoned. The US cotton harvest stood at 9.85 million acres, the USDA said.
The result of the drought in the south western and south eastern US caused cotton yields to drop to 711 pounds/acre, which USDA figures showed is the lowest in eight years.
