Welcome to John Robinson's Web Site on Cotton Marketing & Risk Management

Weekly Price Pattern. For the week ending Friday May 11, cotton futures continued their decline, ending the week with sharp decreases to new lows. The early part of the week saw the same downward stair-stepping weakening that characterized the previous week. Much of this could be associated with outside forces, e.g., more european contagion, a stronger U.S. dollar (see below) and the typical "risk off" weakness is stock and commodity markets. Later in the week, some specifically bearish cotton news included substantial rainfall in Texas and the Southeast, as well as a USDA projections of continued record high ending stocks (see below). At this point, cotton futures prices fell off a cliff. The most active July'12 cotton futures contract settled the week at 78.97 cents per pound, while the new crop Dec'12 settled at 76.34 cents per pound. Both of these contracts closed over nine cents lower today compared to last Friday. It was altogether a price crashing, price crushing sort of week. Click here for a discussion of longer term fundamental influences on 2011/12 cotton futures.

Technical Indicators . Technical analysis involves predicting price movements based on earlier price patterns, calculated support/resistance levels, moving averages, retracements, and other indicators. Technical analysis may have implications for hedgers even though their market entry/exit isn't as frequent as professional traders. I don't believe that technical indicators are innately or inherently valid predictors of price behavior. They do not determine prices. But, to the extent that large institutional fund managers act on technical indicators (even in simply placing their buy/sell stops), then those indicators could possibly influence prices in the near term (in the manner of a self-fulfilling prophecy). The various technical indicators for old crop cotton futures remained this week with 100% sell indicators. The new crop technical indicators also continued to show 100% signals. The May 11 Ag Market Network panel highlighted other technical indicators that were "screaming oversold" and raised the possibility of a technical rally after the current selling panic subsides. However, the point was made that most short term technical indicators are rendered useless when the market having just set multi-year lows.

Net Position of Speculators. The speculative fund sector has had a major influence on cotton and other commodity markets in recent years. The role of the fund sector on cotton price volatility is discussed further here in an article written in September 2011 for the International Cotton Advisory Commission (used with permission). There are two public sources of information that give different snapshots in time of the position of speculators in the cotton market. The first snapshot is the ICE futures exchange Spechedge report, which is released early in the week, and reflects the net position of the gamut of speculators, as of the previous Friday. The spechedge report for May 4 reflects reversal of the late April recovery in the aggregate long position. That is, the net long position dropped considerably between April 27 and May 4, mostly from the addition of new short positions (and the liquidation of a small number of longs). We will have to see if this accelerates between the price crashing period of May 4 and May 11. Another closely watched source of similar information is the CFTC's Commitment of Traders report, which is released on Friday and reflects the previous Tuesday's net position. Note that the CFTC data are reported in contracts (roughly 100 bales per contract). The other unique thing about the CFTC data is that it distinguishes the trend-following hedge funds from the buy-and-hold index funds. The CFTC data in 2012 show an upward trend in the index fund net long position, and a fluctuating pattern in the hedge fund position. Shorter term, as of Tuesday, May 8, the Commitment of Traders data showed a large decline in the net long position of the trend-following hedge funds. These data also showed another smaller decline in the index fund position. So the Commitment of Traders snapshot shows a similar swing towards the sell side as the Spechedge report. Again, I would expect more of this in next week's reports given the market action of late this week.

Open Interest. Open interest in cotton futures contracts is another potential indicator or explanatory variable of market behavior. Open interest refers to the number of active positions at the end of the day (not double counting both the buyer and seller). It can be used to confirm the major buying and selling by the fund sector. The useful thing about looking at open interest is that this graph is current as of Thursday. Thus it is a more recent indicator than the half-week-old (CFTC) or week-old (ICE spechedge) data on the net position of speculators. On May 10 total cotton open interest on the ICE was higher than the previous week at just above 188,000.

Currency Valuations. The value of the U.S. dollar relative to other currencies can partially explain speculative influence on cotton prices. As the U.S. dollar weakens, it can encourage flows of money into alternative financial markets like commodities. In addition, a weakening U.S. dollar also creates more direct fundamental reason for export-oriented commodities like U.S. cotton to rise in price since it becomes cheaper relative to competing foreign cotton. So there is a double reason for cotton prices to rise when the U.S. dollar weakens. Before the summer of 2011 there was a longer term down trend in the relative value of the U.S. dollar, as reflected by the ICE U.S. dollar index. The most cited reason for this trend has been the continuing near-zero interest rate policy of the Federal Reserve. The weak dollar/stronger cotton price relationship has generally been the case except during very specific situations like a weakening Euro (e.g., late 2009/early 2010, and again in late 2011). In recent months the short term trend in the U.S. dollar index has fluctuated up and down with changes in news out of Europe and changes in U.S. economic outlook. This week the U.S. dollar index dipped early, recovered by mid-week and had climbed to the weekly highs by Friday. The dollar's pattern was largely the opposite of the mostly down-trending value of the euro currency this week.

Interest Rates. Interest rates are similar to currency valuations in their potential influence on commodity prices. One way of viewing this is that as interest rates (as reflected by auctions of U.S. Treasury bills) rise then the U.S. dollar tends to rise too, which in turn tends to depress the prices of dollar denominated commodities. In general, if interest rates were to rise, it would pull investment money flows away from commodities. This would likely cause a decline in agricultural and other commodity futures prices, all things being equal. There are at least two possible causes for interest rates to rise. First would be if the Federal Reserve gives up on stimulative monetary policy and starts to worry about battling inflation with higher interest rates. They would use various monetary policy tools to raise interest rates incrementally. The Federal Reserve announced on August 9 that they would not raise interest rates for two years, so this possibility is distant at best. In 2011, the Federal Reserve also tried to push interest rates lower by selling some of its intermediate bond holdings and buying longer term bonds (aka "Operation Twist"). By all reports, the Operation Twist policy is still being used. The European Central Bank announced in early November that it was still cutting rates to counter weak economic growth. As of January the Bank of England and European Central Bank announced they were holding interest rates at the current low levels. And as of late January, the U.S. Federal Reserve announced a continuation of low interest rates into mid-2014. The second mechanism for rising interest rates is in the wake of the downgrade in U.S. bonds by Standard and Poor's. Just as if you or I were to suddenly get a bad credit score, there would be a more sudden, market-driven effect on the cost of borrowing -- it would go up, in the form of higher interest paid by the U.S. government. Effectively, this could come about via the higher return demanded by purchases of U.S. treasury bonds. It hasn't really happened in the U.S. yet since the August 5, 2011 downgrade, but it remains a possibility. As of mid-January, the rating company Standard and Poor's downgraded a whole list of European countries. In the near term, Spain's debt was downgraded again by Standard and Poors. Also, the Federal Reserve's Open Market Committee (FOMC) met in late April and left interest rates unchanged citing small improvements in the U.S. labor market and economic growth. The implications were that further monetary stimulus was unlikely.

On Call Sales Report. The CFTC also publishes a report showing the quantity of cotton that has been bought or sold where the sales price has not been fixed would normally be on in a basis type contract, which are also referred to as "on call" contracts. Textile mills routinely buy cotton from merchants using "on call" contracts. When these parties enter in to the "on call" contract, a futures contract would normally be sold to hedge the transaction. Later, when the mill actually fixes the price, that short futures position would be bought back. This could be done with options or futures. To the extent that mills don't independently cover their options positions, their un-priced "on call" contracts are reflected in the current "on call" sales report, under "Unfixed Call Sales", which is reported by individual futures contract. When the unfixed call sales (to mills) outweighs the unfixed call purchases (by suppliers) the implication is that there will potentially be a lot of futures buying as mills hit the deadline of their "on call" contracts, fix the price, and the associated short hedges are bought back. As of May 4, unfixed call sales for Jul'12 implied that 12,800 cotton futures contracts might have to be bought before Jul'12 matures. That assumes that the imbalance isn't reduced in an orderly fashion prior to each of those contracts' expiration. The ratio of unfixed call sales to unfixed call purchases in the Jul'12 contracts is about 3 to 1.

Certificated Stocks. The level of certificated stocks fluctuated during 2011 and has recently been growing. Certificated stocks represent mostly merchant inventory that is in position to be delivered against short futures contract positions. The level of certificated stocks in delivery point warehouses is reported daily by the ICE. As of May 3 the level was at 144,170 bales which higher than the previous week.

The 2011/12 cotton supply/demand picture was adjusted somewhat by USDA's May WASDE report. Foreign and world numbers both saw month-on-month increases in estimated cotton ending stocks by over 800,000 bales. This resulted from from small decreases in estimated production that were offset by a 1.25 million bale decrease in estimated foreign consumption. The bottom line is a worsening of 2011/12 world ending stocks to 66.88 million bales. The resulting 63% stocks-to-use ratio implies that almost two thirds of next season's cotton needs are already on hand in warehouses. Depending on your view of the Chinese government stockpiles, these numbers are either very, very bearish or just very uncertain. On the face of it, the month-to-month adjustment and the year-on-year change in world stocks-to-use would be historically price weakening. Over the last few decades, the few times that world stocks-to-use exceeded 60%, the A-index was forty cents lower than it is now. Still, while the A-Index is still hanging around in the upper 90 cent range, there will be very little chance of LDP payments for U.S. growers during 2011/12.

USDA's May adjustment of the U.S. cotton numbers was only a very slight adjustment to the production/supply side (more like rounding adjustment). This resulted in no changes to the bottom line of 3.4 million bales of ending stocks. Historically, this month-on-month adjustment would be neutral . However, the actual market reaction on May 10 was dominated by the bearish world numbers in both the old crop estimates and new crop projections. USDA maintained an average farm price estimate of around 91 cents per pound for the 2011/12 marketing year. This price range still implies a zero payment rate for 2011/12 counter cyclical payments.

The 2012/13 cotton supply/demand picture has been framed by USDA's May WASDE report. USDA is projecting a continuation of production surpluses over consumption, thus adding to the historically high ending stocks. The bottom line is a forecast of 2012/13 world ending stocks at to 73.75 million bales. The resulting 67% stocks-to-use ratio again implies that two thirds of next season's cotton needs are already on hand in warehouses. This record high level of ending stocks, as well as the year-on-year increase, should be historically price weakening. We will have to see if the A-Index declines below the upper 60 cent threshold where the LDP payment rate becomes positive. (That, of course, assumes that the marketing loan program is still funded for the 2012 crop.)

USDA's May projections of U.S. new crop cotton numbers basically applied prospective plantings (discussed below), an above average abandonment of 20%, and a weighted average yield from recent (drought dominated) history. Projected production is 17 million bales, which represents almost a 1.5 million bale year-on-year increase. Projected use is slightly higher than the previous year's, The bottom line is a 1.5 million million bale increase in projected U.S. ending stocks to 4.9 million bales. Historically, this year-on-year increase in projected ending stocks suggests weaker new crop prices, which is what we are already seeing. The bearish market reaction on May 10 was also likely influenced by the bearish foreign/world numbers and the prospects of more rain over Texas. A look at the daily movement of Dec'12 cotton futures prices show a rally up from 75 cents in 2010, leveling off around $1.00 during the Spring of 2011, spiking over $1.05 in June 2011, and then weakening into the lower 80s. Then since May 10 we have seen a dramatic drop. The price path going forward will be a tug of war between weak demand and supply uncertainty. Uncertainty about U.S. production and supply may dominate this tug of war during the planting and crop growing season. When the production risk premium fades away this summer, I expect more price weakness. USDA is currently forecasting a 2012/13 average U.S. price received range of 65 to 85 cents per pound. Such a forecast of farm prices now may be a little too high, assuming as I do that Dec'12 stays within a 68-to-85 range going forward.

Supply Uncertainty: Acreage. USDA released a major benchmark on March 30 with their 2012 Prospective Plantings report. Reflecting grower intentions as of early March, the report indicated a 10.7% year-on-year decline in 2012 U.S. planted cotton acres to 13.155 million. That figure was higher than many analysts had expected given recent strength in soybean prices relative to cotton, as well as anecdotal accounts of influential grain sorghum, peanut, and sunflower contracts. The projected year-on-year decline in Texas to 6.81 million was more than I was expecting, but there it is. There is still time for planting intentions to change a little due to prices or weather. Then there is the separate question of abandonment and production expectations, again due to weather. In terms of planting progress, The USDA snapshot for the week ending May 6 shows continued planting progress at a pace which, in the aggregate, is eight percentage points ahead of the five year average. Cotton is similar to most spring planted crops in being ahead of the average planting rates due to widespread warmer spring weather in 2012. When it's all said and done, I wouldn't be surprised to see Texas actual plantings increase by a hundred thousand or so acres due to the influence of drier weather during planting time. However, I also wouldn't be surprised to see high priced soybeans displace some cotton acreage in the Delta region, so the the net effect on U.S. acreage and production is uncertain.

Supply Uncertainty: Weather. The drought will continue to be a major influence on U.S. supply uncertainty during 2012. The 30 to 90 day outlook (through July) for most U.S. cotton growing regions is for warmer-than-normal conditions over almost all of the Cotton Belt. However the same outlook shows an equal chance of normal and drier-than-normal precipitation conditions over the same region. This latter forecast is a significant improvement over previous long-term precipitation forecasts, and it partially jibes with NOAA's official designation of current ENSO-neutral conditions, i.e., neither La Nina nor El Nino. Be that as it may, there is currently still areas with severely limited deep soil moisture, and the "normal" Texas summer is hot and dry. The May 1 drought monitor picture which still shows severe and exceptional drought in some of the major cotton growing regions of Texas. More specifically, it's dry in Central Texas, moderate to severe droughty along the Texas Gulf Coast and Upper Panhandle, and Extreme/Exceptional drought in the South Plains. The southeastern U.S. has it's share of the same drought conditions, centered on Georgia. The May 8 edition of Texas AgriLife Crop/Weather highlighted continuing increasing hot and dry conditions in the southern and western regions of the State, with regional updates on planting and crop progress. Fortunately, the week ending early Friday May 11 saw two rain events that brought significant rainfall accumulations over the lower South Plains, the Rolling Plains, and Central Texas. As of this writing there was still more likely to fall over Friday and Saturday. The eastern Cotton Belt also saw scattered showers this week.

World Supply and Demand Outlook. The forecasted trends of reduced acreage in the U.S. are also likely to happen in major foreign cotton producing countries. Unlike the U.S. (which may still see a year-on-year increase in production), the major foreign producers may see reduced production. ICAC is forecasting a 7% year-on-year reduction in both world planted acreage and world production. USDA is forecasting a 4% reduction in global cotton production for 2012/13, coupled with a rebound in consumption. However, these trends are not enough to prevent a second year of excess production, which will lead to further building of world ending stocks. ICAC's forecast is for 2012/13 world ending stocks of 59% (roughly the same as USDA's estimate for 2011/12). The implication is for prices to continue to correct downward, back to more normal levels in the $0.80 to $1.00 range. Thus there remains little chance of LDP payments for the 2012 crop.

A major factor in predicting 2012 foreign production is the planted acreage question. Most attention is on China in this regard, and the relevant question appears to be how much will Chinese growers reduce their acreage. A March 26 report from CNCotton (and industry organization) measured a 9.1% reduction by surveyed Chinese growers. The China Cotton Association has lowered their forecasted decline in Chinese cotton acreage from a 16.7% acreage cut (year on year) to only 9.4%. I confess to not being able to find this original information on their website. A 16% acreage reduction is being forecasted in India by the Cotton Association of India, with forecasted shifts there from cotton to soybeans. At any rate, the foreign acreage question is important, but uncertain, in its impact on foreign production in 2012. For example, one researcher in China recently predicted a 25% year-on-year decline in 2012 Chinese production based on acreage trends. ICAC is currently forecasting a 13% year-on-year decline in Chinese production. However, given the ample stockpiles of cotton around the world, it is not so easy to say that cuts in foreign acreage will lead to stable or higher prices. There are a lot of variables left to play out.

There are a few ways to at least monitor the moisture situations in important countries. India has a number of weather forecast resources on the web. For example, you can overlay this two month cumulative rainfall map of India against a map of the major Indian production regions. Here is another India cotton map to refer to. A monthly cumulative "drought monitor" type of map is available through the Beijing Climate Center. For any given date, click on the link that reads "SPI Index", and then use the translated color coding below. It helps to overlay the China SPI index map with the cncotton map of cotton growing regions (scroll down to the bottom of their web page).

Longer Term Economic Forces . Over the next few years, I expect higher cotton prices to continue to stimulate lower quantities of demand and higher quantities supply until we see cotton prices trading closer to costs of production. That is, I expect economics to work things out, subject to the ability of the world's growers and mills to freely and fully respond to high prices. Such workings out are reflected by the historical trading ranges of December cotton futures contracts. These price ranges resulted from economic forces that reflect the cost of growing cotton, prices and costs of alternative crops, and various other factors including market distortions from government policy and speculative activity. These U.S. cotton futures prices have historically spent most of their time between about 40 cents and 80 cents. Outside of these levels, from the mill perspective, cotton was either too cheap not to use (below 40 cents) or too pricey to use (above 80 cents). From the grower viewpoint, low prices led them to switch to something else while high prices stimulated more production. Cotton futures prices over 90 cents is in the extreme upper end of the historical trading range of December cotton contracts. Granted that this chart is expressed with nominal prices that need to be adjusted for inflation (which would increase the nominal prices further back in history). And there are some structural changes to these price ranges from the middle classes of the third world having more income and demanding more modern diets and modern stuff. Still, I think history, underlying economics, and time are on the side of cotton futures ultimately moving back into a strong but lower price range (e.g., 70s to the 100s), similar to the strong, but successively lower, price ranges seen during 1996-1998 following the record prices of 1995.

It is also reasonable to expect that in a few years the market could be overreacting to the downside from accumulated surpluses, weak demand, and policy shocks. In other words, yes, we will probably see 50 and 60 cent cotton futures again. Perhaps briefly, but we will likely see those price levels again. I have even had a few suggestions that we may see 60 cent cotton during the 2012/13 marketing year.

A marketing plan is a price contingency plan of actions that a grower/hedger will take in various possible, but ultimately uncertain, future market situations. A marketing plan can include many strategies, probably in combination with each other. These could include basic tactics like forward contracting, selling at harvest, marketing pools, and the USDA loan program. Hedging with futures and options can complement or substitute for these basic tactics. Besides the strategy, a marketing plan should include targeted price levels and calendar dates when you will take a given action. Lastly, a marketing plan should be a written document to help you remember and to take action, i.e., just like your To-Do-List.

Old Crop. This chart tracks the premium of a 95 cent call option on July'12 futures (the red line) compared to the July'12 futures price (the blue line). With weakening/stable futures and declining time value, the call premium has been getting cheaper. If somebody was hanging on to some bales from 2011, they might consider selling them and buying call options as insurance against a missed opportunity of rising old crop prices.

New Crop. In terms of hedging opportunities, with the current decline in Dec'12 cotton futures, many good opportunities to insure against a 20 cent price decline are over. My hat is off to those growers who bought puts in the upper 80 to 90 cent range. For those that missed this opportunity, the relevant question now is the worth of buying puts in the upper 70 cent range. That, of course, depends on whether one thinks prices will fall to 70 cents and even lower. They might, but you will find different opinions about that (as always). The question is whether you can find a good enough insurance buy, and to do that you need to be shopping. As was pointed out on the May 11 Ag Market Network discussion, if the market has a technical rally back to the lower 80s, that might be a good time to implement a hedging strategy such as this.

Historical Hedging Examples. Recent history provides examples of how different futures price patterns can be approached with the flexibility offered by options strategies. The first is December 2003 whose unexpected late-season price surge highlights the need for upside price flexibility in your marketing strategy. The second example highlights the need for a price floor when you have a reasonable expectation (but still ultimately uncertain) of a major price decline, as in early December 2004. The third and fourth examples are from December 2005 and December 2006 when prices traded in a narrow band below most growers' costs of production. In this situation, insuring a meaningful price floor using put options would have been more expensive, so various spread strategies could have been employed to finance the core put option strategy. The December 2007 contract shows how more volatile and higher prices provided more opportunities to set a flexible floor using options. The December 2008 contract provides an extreme picture of volatility and potential option hedging (with some caveats about accessing and/or affording the options). The December 2009 contract also displayed large price swings, with opportunities for options to provide insurance coverage (but not much insurance payout, in that case). The unprecedented price pattern of the December 2010 contract provides another extreme picture of volatility and potential option hedging. Probably the most notable opportunity in the 2010 case was for those who purchased $1.00 call options on Dec'10 in about August, not because they could see the future but because it was a relevant and very cheap insurance buy. Lastly, the pattern of December 2011 reflects a situation of predictably falling prices from a very high level. Because of the expense of put options, 2011 was a situation where put spreads would have been relevant for making downside price protection more affordable.

Crop Insurance Program Changes . 2011 saw some important changes to the crop and revenue insurance programs. A range of products like multi-peril crop insurance (i.e., the old APH yield policy), and the revenue insurance products that applied to cotton (e.g., Crop Revenue Coverage, Revenue Assurance, and Income Protection) were basically re-packaged by USDA-RMA, with a common mechanisms for price discovery and rating. Details on the official price discovery methods and sales closing dates for the 2012 cotton crop in different regions can be found here. In short, the price that will be used to value insured cotton will be based on the average of futures prices at defined periods of the year. This approach is new for yield insurance, but similar to how CRC coverage was priced in years past.

I am looking for an 75 to 95 cent range for Dec'12 cotton futures, with the higher prices more likely earlier in the year. That outlook has already been relevant in the establishment of 2012 crop insurance projected prices. The relevant price discovery windows are determined by a region's sales closing date. South Texas established a projected price of 91 cents per pound for yield and revenue protection policies. Likewise, the regions with a February 28 sales have a 94 cent projected price. Lastly, the regions with a March 15 sales closing date have a 93 cent projected price.

The repackaged crop insurance program is known as the COMBO program. Instead of separate insurance products to insure cotton yield, or cotton gross revenue, cotton growers have a wide range of choices within one package. The first set of choices involve whether the grower wants to insure only yield (similar to the old multi-peril, APH yield policy, and is now simply called Yield Protection), or gross revenue (known as Revenue Protection, or RP, and similar to the old CRC product using the higher of planting or harvest time futures prices to value the coverage) or gross revenue without the harvest time price valuation (known as Revenue Protection Harvest Price Exclusion, or RPHPE,and similar to the old RA or IP products. The three new product choices vary in cost as they provide differing levels of protection. How does this relate to cotton marketing? Well, the yield protection product basically only covers your yield risk (valued at pre-plant futures prices, and only triggering if there is a yield loss). The revenue products protect you from declines in gross revenue caused by lower yields and/or lower prices. Thus the new revenue products are analogous to having yield insurance plus a deep out-of-the-money put and call option (for RP) or just having yield insurance plus a deep out-of-the-money put option (RPHPE). All things being equal, the latter revenue product would cost less than the former, but the latter leaves a grower more exposed to the risk of revenue losses.

One implication of the common pricing and rating procedures for these products is that you can compare the difference in premiums and infer the value of the built-in price insurance. For example, for a given coverage level, the difference in per acre premiums between the YP and RPHPE policies would reflect the value of downside price insurance, analogous to the value of an out-of-the-money put option. Likewise, the difference between the per acre premiums between the RPHPE and RP policies would reflect the value of upside price insurance, analogous to the value of a call option. Knowing this, growers can compare the value of downside or upside price insurance from revenue products to comparable price insurance via the options market. For example, there could be some years when it would be cheaper to buy a YP policy and marry it to an out-of-the-money put option, rather than buy an RPHPE policy. Or vice versa.

Coverage Level. Beyond the choice of product, growers have to decide the level of coverage, i.e., 60% or 65% or whatever. All things being equal, the cost of your insurance premium will be higher at higher levels of coverage. Because of the greatly increased premium costs, cotton growers may want to consider (or at least price) lower levels of coverage than they have had in the past.

Aggregation. In addition to type of product and coverage level, growers have to decide the level of aggregation of insurable units, with a brief description of the choices being the following (check your crop insurance agent for more important details and requirements): 1) optional units -- smaller divisions of basic units such as individual farm numbers or sections and/or dividing up your cotton into separate insurable practices like dryland versus irrigated; 2) basic units -- all the owned and cash rented farmland in the county that is planted to the same crop, and separately all the share rented farmland in the county that is planted to the same crop; 3) enterprise units -- combination of all the owned, cash rented or share rented farmland in the county that is planted to the same crop; 4) whole farm units -- combination of all the insurable acres in the county of at least two crops. These unit descriptions are presented in increasing order of aggregation. All things being equal, the cost of the insurance will decrease as you combine into higher levels of aggregation (because you are bearing more yield risk at higher levels of aggregation). Similar to the choice of coverage levels, growers may want to at least price the cost of higher levels of aggregation to lower insurance premiums that will greatly inflated by high projected price levels and volatility.

Cotton growers have additional choices to make. The most notable one is the cottonseed endorsement, which provides additional coverage for the value of lost cottonseed in the event of an insurable loss in lint yield.

Workshop opportunities. The Texas AgriLife Extension Service offers a number of resources on marketing and risk management. The pre-plant educational meetings offered by county extension agents often include market outlook information. Extension agricultural economists regularly conduct half-day or one-day trainings introducing the topic of hedging with futures and options. To have one in your area, contact your county agent. In addition, Extension Economists periodically offer Master Marketer workshops, which involve 64 hours of training aimed at developing a comprehensive marketing plan. The next Master Marketer workshop will be in early 2013, tentatively in the Wharton area.

One thing we always do at Master Marketer is conduct a hands-on trading game for cotton and grains. We also do separate one-day Cotton and Grain Risk Management Workshops that provide this same kind of hands-on learning experience, along with current cotton/grain market outlook and a discussion of current crop insurance issues. We have conducted these types of workshops in various settings, including the last two DTN/The Progressive Farmer Ag Summits in Chicago.

Lastly, I make routinely deliver presentations on the outlook for cotton prices. These are usually scheduled and coordinated by County Extension Agents for Texas AgriLife Extension Service.

Costs of Production Planning . A marketing plan is a contingency plan of actions that a grower would take in various possible, but ultimately uncertain, market situations. Developing and implementing a marketing plan begins with an updated estimate of expected production costs. Without accurate farm-specific cost information, it is impossible to set meaningful pricing goals to cover your production costs. Texas cotton growers have a number of available sources of information and programs to help them figure their production costs as accurately and completely as possible. This is extra important for the 2012 crop since input prices are likely to be rising along with commodity markets.

Other Resources. Extension economists and county agents are involved in a number of marketing clubs which provide growers an opportunity for more regular interaction and discussion about marketing. We facilitate the monthly Ag Market Network activity which connects growers and marketing clubs with panels of knowledgeable analysts. To support all these efforts, we also have an extensive on-line library of short articles about various topics related to marketing and risk management. A good, comprehensive and cotton-focused on-line bulletin about the cotton futures market is available courtesy of my colleague Blake Bennett and Cotton Incorporated. A paper about Texas cotton transportation and logistics compares current cotton flow data with information from the 1980s and 1990s. With permission from the good folks at Cotton Outlook, I am reprinting here a descriptive, background article entitled Trends and Prospects for Texas Cotton. And similarly, with permission from ICAC, here is a reprint of an article discussing the role of the fund sector in recent cotton price volatility.

DISCLAIMER :

The opinions and recommendations expressed are solely those of the author and are intended for educational purposes only as part of the Texas AgriLife Extension Service. Neither the author nor the Texas AgriLife Extension Service assume any liability for the use of this newsletter. Educational programs of the Texas AgriLife Extension Service are open to all people without regard to race, color, sex, disability, religion, age, or national origin.

Dr. John R. C. Robinson
Professor and Extension Economist-Cotton Marketing
Texas AgriLife Extension Service

Department of Agricultural Economics
Texas A&M University
2124 TAMU
College Station, TX 77843-2124
Phone: (979) 845-8011
Fax: (979) 845-4906
Email: jrcr@tamu.edu

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This project supported by Cotton Incorporated

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