Description: Don Shurley, UGA Tifton Campus Cotton Economist, talks about the future of cotton for 2012 and the effect the foreign market has on U.S. pricing.
Kyle Dean, Host: It is time for our UGA Tifton Farm Chat for today. It’s Market Monday. And as he usually does, he joins us on the telephone today, however, it is Don Shurley, Cotton Economist UGA Tifton. How are you, Don?
Don Shurley, UGA Tifton Campus Cotton Economist: Good morning, Kyle. How are you this morning?
Kyle Dean, Host: Doing great. It is good to have you here on the program. You are traveling today, so you had to call in but we appreciate you doing so. Tell us a little bit about what excursion you are on today.
Don Shurley, UGA Tifton Campus Cotton Economist: I'm on the way up to Franklin, Virginia. They have an annual cotton conference up there every year and I’ve been invited up there to speak tomorrow to kind of give them a little bit of an idea of what the market outlook is doing. We'll talk about some of the same things that you and I will talk about this morning. And then on Wednesday, I’m going to stay over and do kind of a marketing seminar for them. We will look at kind of some ways to manage some of the risk that’s in the market right now. So, that's kind of what we are doing, I'm on the way to Virginia.
Kyle Dean, Host: Since we last talked, the prior time that we talked, we talked about cotton prices showing some marked improvement and continuing to do so now.
Don Shurley, UGA Tifton Campus Cotton Economist: That's correct. We are up to about 97 cents on the new crop futures now which is extremely good. I think the market has got a little more upside to it above where we are right now. Of course, certain things have to play out Certain factors have to come into play, but I think a lot of farmers probably have already done some pricing on part of this next year's crop and hopefully, if the market will continue to trend on up and I believe it has some opportunity to do that, it might give them an opportunity to maybe even catch another dime in this market above where we are right now.
Kyle Dean, Host: You talk about how the cotton has shown some kind of a rebound in the last few weeks. You mentioned that other commodities have not.
Don Shurley, UGA Tifton Campus Cotton Economist: That's right. Cotton has really improved in price. We are kind of looking ahead to spring and planting season and farmers will tell you that it's not necessarily what the price of cotton is, it's what all these crops are relative to one another and cotton has gained some strength here the last couple of months. Some of the other commodities really have not, not as much as cotton has. Cotton is beginning to look a little better as we think about 2012 planting. Some indications are that our acreage will be down next year, but if our prices stay in this range or even trend even higher as we get on in closer to planting season, then I think our acreage will still be down, but it won't be down near as much as we think right now.
Kyle Dean, Host: We've seen the prices go down from $1.50 to around this $0.95 now $0.97 as you given us the latest prices. What was the biggest reasoning for that downward trend?
Don Shurley, UGA Tifton Campus Cotton Economist: Reason for the downward trend was basically that demand had gotten weak. I think I’ve mentioned on the program before, we're basically 10 million bales below–this is worldwide–where we thought demand would be. We had several key foreign countries that had pretty good crop years, although we had some effects with the drought here in the U.S., we had pretty good crops in some key foreign countries. You combine that with the fact that our demand just continued to get weak as we got on into summer into fall and now into winter, that was the reason for the price decline that we saw.
The reason for the price increase that we are experiencing right now is just the opposite of that. Demand--there are some indications, although we haven't seen any hard numbers yet, there's some indications that demand might be improving as we look on out later in the year. Also, some of those foreign countries that we talked about are beginning to have some problems and it looks like their crops, and I'm thinking particularly China, Turkey, India, and Pakistan, those countries their crops, Kyle, may be a little bit smaller than we thought they would be. So, it kind of changes that whole picture that we were talking about when we had prices trending down.
Kyle Dean, Host: We talked about China kind of buying up stock for the future and not needing as much this year. Are they having to dip into those reserves maybe a little bit more than they thought because of the lack of crop that they might have?
Don Shurley, UGA Tifton Campus Cotton Economist: China's been buying cotton to build their stock, yes. And, it’s projected right now that China may come in 3 or 4 million bales less than we thought. If that is the case, yes, that buying to build stocks will continue. Because, in particular, if you combine that with an improvement, hopefully, in their textile mill business that will mean that they will not only have to build up their stocks, but have to buy next year's crop actually put into their mill. So the fact that the China crop maybe 3 or 4 million bales less than we thought a couple months ago is pretty big.
Kyle Dean, Host: Yes, Don. I tell you it's going to be an interesting year I guess, with the outlook as far as the weather is concerned. I know we are calling for more drought. How can that impact the crop and impact pricing?
Don Shurley, UGA Tifton Cotton Economist: That's a great question. I really appreciate you asking that because I had wanted to mention that. We are not getting any water. Texas is still dry. We know they were dry last year. Georgia is dry. We are not getting the rainfall we need to recharge the aquifers and our ponds that we irrigate out of, and particularly for non-irrigated situations, if it stays dry as we get on into spring, if you combine another drought year or even a moderate type drought year, if you combine that with the fact that our cotton acreage may be down a little bit next year, then the U. S. crop could be down. I think the foreign crops are going to be down for sure because they will cut back on acreage. And again, last year, they had a good year, but chances are the foreign crop will be down. But, if we don't get some recharge in the water and have a good growing season, U. S. crop could be not what we think it would be as well. So, again all those things have a big impact.
Kyle Dean, Host: We will keep our eyes on it. And Don, I'm sure you'll keep your eyes really closely on this situation as it relates to cotton pricing and what the markets do out there. I appreciate you taking time to join us here on this busy Monday for you. Safe travels there and back, Don, and we will talk to again in 3 weeks.
Don Shurley, UGA Tifton Campus Cotton Economist: Kyle, it is always a pleasure. Thank you for being willing to hook me up over the phone this morning; greatly appreciate it.
Kyle Dean, Host: Alright Don, thanks so much. Don Shurley on WTIF. Going to be back after this. You are listening to Hometown Country 107.5 WTIF.