Published on 03/04/96

Early Cotton Prices Provide Incentive for Growers

Common folklore says the early bird gets the worm. Georgia cotton growers may not want the worms, but high prices provide plenty of incentive for early action.

"We're seeing forward contracts offered at 75 cents a pound," said Don Shurley, an economist with the University of Georgia Extension Service.

"This is the highest we've seen prices this early in the season in at least the past three years," he said.

The high prices balance mostly on two conditions, he said. Low 1995 yields have kept U.S. markets tight, and the ongoing farm bill debate in Washington has kept everyone guessing about how much cotton farmers will plant this year.

The U.S. Department of Agriculture doesn't release its first acreage estimate until late March.

"The 'Freedom to Farm' issue will allow farmers more flexibility," Shurley said. He expects farmers to base their planting more on what the market will support than on what the government allows them.

Potential peanut quota cuts may help farmers decide to plant more cotton. But Shurley said corn and soybean prices are high this year, too. Some farmers may shift part of their cotton acreage to these crops.

The National Cotton Council figures U.S. cotton acreage will drop by 8 percent this year, to 15.5 million acres. Georgia estimates (1.41 million acres) are down 6 percent from 1995.

"Nationally, with normal yields, we should make 19 million to 20 million bales of cotton," Shurley said.

So how long will prices and forward-contract offerings remain high?

Early-season weather and fluctuating world and domestic demands can affect prices minute-by-minute, Shurley said. But if domestic consumption and mill demands stay high, farmers could see high prices through 1997.

No matter what the price, he said, farmers have an opportunity to cut their marketing risks.

"They can use forward contracts or options to provide price protection," Shurley said. "They will still be able to benefit from later price increases."

Farmers should be aware of discounts from lower-grade cotton or from trash after harvest, too. One-quarter to one-third of the crop is discounted for spotted lint. "That can cost growers 3 cents to 5 cents a pound," Shurley said.

Other money-makers include selling cottonseed. Cottonseed prices have risen from about $65 per ton in 1993 to more than $80 in '95.

"Of the most common uses of cottonseed, 'crush' delivers the most value," he said. The ginned seed can be crushed for oil and the remaining meal used for livestock feed.

That added value helps keep cotton prices up, too.

Shurley said cotton requires a lot of work to grow. "The management level is very high for everything from actual production through marketing," he said, "but for growers who manage their crop and marketing plans well, the rewards can be great."