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Cotton in 2011: Increased Volatility Ahead for Traders and Manufacturers

Jan. 15, 2011 2:48 PM ETBAL, CORN1 Comment
Michael Ferrari profile picture
Michael Ferrari

Tight stocks in the U.S. cotton market coupled with a heightened awareness of potential weather risks due to La Nina at the start of 2011 signal incereased volatility for traders and manufacturers in the months ahead. We talked about some of the effects on commercial agriculture stemming from the current La Nina in a post last week, and cotton will be a key commodity to keep on the radar, at least through the first half of the year. The USDA table below shows says it all ... despite a rebound in world cotton production in 2010/11 over the 2009/10 crop year (115.5 MM bales v. 101.5 MM bales), the U.S. domestic Stocks-to-Use ratio is now under 10%; this measure of market tightness was above 50% just a few years ago.

(Click to enlarge)

(Click to enlarge)

The chart above shows the March 2011 contract reaching a high of nearly $1.60/# in late December; it has since retreated back to the $1.40-$1.50 range, which is still a significant rise over what manufacturers were expecting when planning their spend in 2011. Although global consumption is down slightly from last year, demand for fiber remains strong and we so anticipate this support to remain in place during a slow but steady recovery (China has increased the y/y import quota by more than 33% for 2011).

Prospective acreage will also come into the equation in spring. According to a recent Financial Times article, the USDA is estimating that the mid year stocks-to-use ratio for U.S. corn will be around 5.5%, the lowest in 15 years. The potential for low corn stocks supporting prices may have some growers who would be planting cotton this year diverting a portion of their acres to corn, expecting a premium in this tight market. This scenario has the potential to further exacerbate the cotton situation, and

This article was written by

Michael Ferrari profile picture
Michael Ferrari is a Senior Scientist and Director of Commodities at aWhere, where his research and technology transfer activities focus on improving their global agricultural/climate/life sciences data platform. He is also the founder and principal at Atlas Research Innovations, which provides applied research and bespoke services to clients in the private and public sector, government, and academia. Previously, he was the Director of Agricultural Commodity Research & Risk Management for The Coca-Cola Company, the Director of Informatics and a Principal Scientist at NASA for Computer Sciences Corporation, Vice President of Applied Technology and Commodities at WTI, and a Research Scientist and Commodity Trader at Mars. He spends much of his time building tools and models with sensors and data, creating algorithms, and directing commercial research activities towards the examination of the global food and climate complex from a systems perspective. Michael is a frequent speaker at scientific, commodity and data/technology conferences around the world, where his talks focus on the confluence of human-environmental-technology interaction and the broader relationship of these topics to societal issues including climate, food and energy security, and global change. Michael holds a PhD in Geophysical Fluid Dynamics and Environmental Biophysical Modeling from Rutgers; his doctoral work in numerical modeling was supported by the NASA Goddard Institute for Space Studies.

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Comments (1)

flash9 profile picture
Acrylic or wool or silk. High prices bring on conservation, increased production, and substitution. Not to mention a historic blow out in prices.
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