Cotton merchandisers are finding themselves in an unusual position these days. After years of having more cotton than they needed, buyers are actually having to search for supplies of the white fiber.
While that is good news for cotton producers, the scarcity of cotton doesn’t mean growers should throw their marketing plans to the winds, according to speakers on today’s Ag Market Network conference call.
“Last time I was here we were talking about how we always manage to find enough cotton to get a big ending stock,” said Anthony Tancredi, president of Allenberg Cotton Co. “Now we can’t find enough cotton, and there’s not a situation that exists where we might find too much.”
Tancredi, and Mike Stevens, Swiss Financial Services, said that with the world economy appearing to recover faster than anyone expected, demand for textiles has sent cotton futures into levels not seen in recent years.
“There’s been a lot of conversation in the trade the last five or six weeks about how upbeat the yarn people are,” said Stevens. “The naysayers are skeptical about whether that yarn demand can continue, but yesterday morning when retail sales came out they were extremely impressive. Across the board, retails sales were beating estimates.
“That tells me that consumers are starting to spend money again, and they’re the ones that have the final says,” said Stevens, who joined Tancredi in a special Ag Market Network presentation at the Texas Cotton Ginners Association Gin Show in Lubbock. “The shirts have to come off the shelves, and these numbers show this is more than just inventory replacement.”
But Tancredi and Stevens both cautioned growers to not get caught up in the euphoria of a rising cotton market. (As if to underscore their concerns, cotton futures sold off the day before they spoke.)
“If the price is sufficient to encourage you to expand, then it’s sufficient for you to get some protection on the downside,” said Stevens. “At 75 cents, it’s just like a fulcrum. We’re sitting right in the middle, and you can make a good case for it to go 10 cents either way.”
The biggest threats to the current bullishness? Tancredi says the rest of the world may respond to the current high prices and plant more cotton than anyone expects, and the world economy may not be recovering as fast as most believe.
email: [email protected]