According to Dr. John Robinson, Extension cotton marketing specialist, there are questions about the 2012 cotton crop's potential yield, market value and economic impact.
"Quite a bit of our planted acreage is drain fed or dryland, so that makes us highly variable in our production given the weather," Robinson explained. "Last year, for example, we planted over seven million acres of cotton and then had the worst drought in recorded Texas history. So what did that do? It caused the highest level of abandonment, which that term simply means the difference in what was planted and what ended up being harvested."
Both nationally and statewide, abandonment numbers were the largest ever seen. Particularly, abandonment was high on the dryland acres that were planted and never came up because the drought hit hard early on.
"A conservative damages estimate on the 2011 crop, I believe would be over $2 billion," Robinson said. "If what we would have planted would have had normal abandonment and normal yields, then we would have produced $2.2 billion more worth of cotton and cotton seed. Part of that was because it was the worst drought and part of that was because values last year were also extremely high. So, what was lost was extremely valuable because of high prices."
When looking at the 2011 US Drought Monitor map at this time in 2011, the whole state of Texas was painted in dark red, indicating exceptional drought conditions. In 2012, most of the state has improved thanks to some much-needed rain, but other areas are still not in the clear.
"It has improved in parts of the state, so it depends on where you are," Robinson said. "It is a spotty situation, with some of the biggest cotton growing areas still being in dry conditions. So, we are really in a wait-and-see kind of mode."
While the majority of eastern and central regions of the state have received enough moisture to get them out of the red, much of the cotton-planting acres in South and West Texas haven't seen enough to feel safe. Robinson said that these regions are the driest in the state right now, but they don't plant until late April or the first of May.
"A lot can happen in four or five weeks," he said. "If they manage to have a couple of repeated big rain events, they can get a lot of cotton planted and maybe sprouted, and then wait and see what happens. So, it is still a big question mark in those regions."
The economic impact of another poor cotton crop in these cotton-growing regions will affect the ag industry in those areas. After the poor year in 2011, many businesses that rely cotton farmers as consumers may not be able to handle another down year.
"When people plant a crop and it doesn't come up, that is it for them," Robinson said. "If they had insurance, then they are going to get an insurance payment, but then they are through. So, what that means is that they are not going to spend as much on chemicals and fertilizer and that sort of stuff. So, the ag chemical supply businesses in that region is going to not sell as much, because crops aren't growing all the way to harvest. Custom harvest operations aren't going to run as much, gins aren't going to run as much and warehouses aren't going to have as many bales stored generating revenue in the warehouse."
Those growers that continue to push forward, as some irrigated growers did last year, to keep the crop irrigated and growing, may still end up with very little -- losing more.
"If you lose the battle quickly then you probably lose less money," explained Robinson.
So, at this point, cotton growers that are choosing to plant a crop for 2012 are taking a risk. With so many uncertainties in the weather and market of cotton, it isn't an easily calculated risk. On March 30, the USDA released the results of the US government survey indicating that nationwide acres planted of cotton will be down approximately 1.6 million acres.
"Those results indicate that this year, acreage planted nationwide, and in Texas, will be fewer than I thought, although in Texas, we will still be planting a lot -- 6.8 million (acres)," Robinson said. "My main point there is that there is still time for that planted acreage number to adjust. It probably will be lower, just because people in lots of places other than Texas are planting more corn and soybeans, and here in Texas there are stories about more people planting things like sorghum, sunflowers and things like that."
The question of yields will continue throughout the summer, even after all the planting is done, because the cotton market is set up to be a "weather market."
"We are dealing with a lot of market uncertainty, so prices are going to be kind of bouncing around, depending on what weather report is," Robinson said. "We will have what they call a weather market. Last year was one, and this year is another one, so we basically are going to have to deal with that kind of uncertainty and its effect, kind of pushing prices up and down until harvest time."
So, looking at possible market prices, Robinson's projection is that unless there is a huge disaster in places like India or China that affect's cotton production, prices will most likely bounce around where they are, in the high 80-cent range.
"So, for growers that are going to wind up with bales to sell this coming fall, my thought is to try to do something to protect the price either through contracting or hedging," Robinson suggested, although he recognizes there is not much opportunity for either.
"I would be worried about declining prices," he continued. "I think the trend is still going to be lower. When we finally get some numbers about what yield is, if the number is anywhere half-decent, you add that to the huge supplies that were grown worldwide last year, we will have a huge supply on hand, and possibly low demand."
