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South Texas harvests the earliest cotton in the U.S., usually between mid-July and the end of August. The cotton grown in South Texas is ginned locally and typically sold to cotton shippers/brokers, who in turn either sell the lint to U.S. cotton mills (to be spun into yarn) or export it to cotton mills in Europe, Asia, and Latin America. Because cotton is traded in a global market, South Texas cotton growers are basically in competition with growers in the rest of the U.S. and the world to produce quality cotton as cheaply as possible. Therefore, the prices that South Texas growers receive are shaped by events that determine the world's supply and demand of cotton.
The cotton market has been dramatically down during 2001 as South Texas growers are facing prices that are below their production costs. The reason for low prices is the expectation of large stockpiles leftover due to large U.S. cotton production, diminished U.S. mill usage, greater imports of inexpensive foreign textiles, and not enough exports of U.S. cotton. The strong U.S. dollar (relative to foreign currencies) is making our exports more expensive to foreign buyers while making imported textiles relatively cheaper. Current, in-depth analysis of the cotton market situation is available from marketing specialists at Texas A&M University and the USDA's Economic Research Service.
Since nobody really knows for certain which way, or how much cotton prices will change, it is critical that you develop a clear and deliberate marketing plan. A marketing plan is nothing more than an educated contingency plan for how you will sell your crop, take advantage of opportunities, and avoid downside price risk. The education part requires an accurate knowledge of your costs of production, as well as updated knowledge about the cotton market situation and outlook, and some familiarity with available tools like forward contracting or hedging with futures and options. Then you need to develop a contingency plan consisting of a series of rules, e.g., if market prices do this, then I will take this action.
One of the best ways to become educated about market conditions and marketing strategies is by forming a "marketing club" with other growers. Texas Cooperative Extension has sponsored marketing clubs for many years. There are also a wide variety of available Extension programs on agricultural marketing. Please contact your county agent if you're interested in participating in one of these programs.
Q. How many acres of cotton are produced in my county or region?
Q. How much does it typically cost per acre to grow cotton?
Q. How can I learn more about hedging with futures and options?
A. The most in-depth resource for learning about hedging and developing a marketing plan is to participate in the 64-hour Master Marketer Program, sponsored by Texas A&M Extension Economists. Ask your county agent or click on the link to learn more about Master Marketer Program.
Dr. Carl Anderson's monthly newsletter,
Cotton Market Comments
The Master
Marketer Program, an in-depth training workshop on marketing,
sponsored by Texas A&M Extension Economists.
Cotton Price Calculator developed by the Cotton Economics Research Institute, Texas Tech University
Marketing Organizations and Strategies and Price Risk Fact Sheets: a collection of articles describing the impact of marketing techniques on managing risk in agricultural enterprises.