“The price of cotton will eventually rise again, and some cotton fields will be retained at higher prices, but because some cotton fields will still be replanted, the cotton area will still be reduced.”
President of Staplcotn, USA Hank Reichle, CEO and CEO, expects U.S. cotton acreage to decline in 2021 due to challenges with the new U.S. cotton harvest in 2020 and the conversion of some cotton fields to alternative crops.
Nonetheless, Hank Reicher is generally optimistic about the outlook for cotton, as low supply chain inventories and a tightening of the U.S. cotton balance sheet help prices rise. Among the bearish factors, the COVID-19 pandemic is hampering demand and cotton still faces stiff competition from cheap man-made fibers. At current price levels, all commodities have profit potential.
One of the main driving forces for the rise in cotton prices is that the inventory-to-consumption ratio in the United States is 26.1% this year, compared with 41% in the previous year. Lower U.S. cotton production and strong export sales will reduce cotton inventories. With the inventory-to-use ratio approaching extremely low levels of 20%, this is helping to drive up prices.
Reichle said that U.S. cotton production declined in 2020 due to weather challenges across the cotton-producing region, especially drought that led to a major crop loss in Texas. According to statistics from the United States Department of Agriculture, the cotton abandonment rate in Texas is as high as 44%, and the average yield is only 665 pounds/acre. The average yield in the south-central United States was 1,132 pounds per acre, a slight decrease year-over-year. Although some areas in the Midwest and Tennessee have had pretty good harvests, some areas in Mississippi and Louisiana have very low yields. Production in the Southeast was disappointing. According to USDA data, the 2020 yield in the Southeast region of the United States was 838 pounds/acre, which was well below the 946 pounds/acre in 2019.
Reichle said that another major driver of price increases is the influence of speculators on the market. The reason for the large inflows of funds into the cotton and commodity markets is the weakening of the U.S. dollar. In addition, rising grain prices are driving demand from China.
Still, there is a lot of liquidity in the market and things can change. There is still a lot of uncertainty about demand and U.S. cotton production. If there is sufficient rainfall in Texas and the drought gradually subsides, U.S. cotton production may be much higher, possibly 1 million, 2 million, or even 2.5 million bales higher than expected. </p
