Transcript Cotton Situation, Outlook and Market Risk Management

Cotton
Situation, Outlook &
Market Risk Management
2001-02
Charles Curtis, Jr.
Clemson University
Global Cotton Situation
Supply, Use, End Stocks
140
120
100
80
60
40
20
0
95-96
96-97
97-98
Supply
98-99
Use
99-00
End Stocks
00-01
01-02
U.S. Cotton Acreage
Planted and Harvested
16
14
12
10
Crop Year
Planted
Harvested
2001
2000
99
98
97
96
95
94
93
6
92
8
91
Million Acres
18
U.S. Cotton Acreage
Planted and Harvested
Million Acres
18
16
14
12
10
8
6
77
80
83
86
89
92
Crop Year
Planted
Harvested
95
98 2001
Upland Cotton Area Harvested, Selected States, 2000 and 2001
State
Alabama
Florida
2000
2001
--- (1,000 Acres) ---
Change
(%)
Georgia
Louisiana
Mississippi
North Carolina
South Carolina
Tennessee
Virginia
Texas
530
106
1,350
695
1,280
925
290
565
108
4,400
605
124
1,490
900
1,680
1,055
296
605
104
4,500
14.2%
17.0%
10.4%
29.5%
31.3%
14.1%
2.1%
7.1%
-3.7%
2.3%
Total Southern Region
10,249
11,359
10.8%
Total US
12,884
14,104
9.5%
Percent Southern Region
79.6%
Source: USDA, NASS, Crop Production, August 10, 2001
80.5%
U.S. Cotton Yields
Crop Years
2001
2000
99
98
97
96
95
94
93
92
750
700
650
600
550
500
450
400
350
300
91
Lbs. Lint
Pounds per Acre
U.S. Cotton Yields
Lbs. Lint
Lbs. Lint per Acre
750
700
650
600
550
500
450
400
350
300
77
80
83
86
89
92
Crop Years
95
98
2001
Upland Cotton Crop Percent Poor or Very Poor Comparison, 2000 to 2001
8/7
8/6
State
2000
2001
Alabama
41%
Florida
N/A
Difference
9%
Georgia
-32%
N/A
6%
N/A
-24%
4%
-16%
8%
-5%
4%
1%
3%
-10%
7%
5%
45%
21%
5%
5%
23%
5%
30%
Louisiana
20%
Mississippi
13%
North Carolina
3%
South Carolina
13%
Tennessee
2%
Texas
24%
Virginia
0%
US (14 States)
18%
Source: USDA, NASS, Crop Progress, August 7, 2000, and August 6, 2001.
Upland Cotton Forecasted Yield by Selected Southern Region State, 2000 and 2001
State
2000
2001
Change
(Pounds per Acre)
Alabama
Florida
Georgia
Louisiana
Mississippi
North Carolina
South Carolina
Tennessee
Texas
Virginia
Total US
492
682
190
480
650
170
591
680
89
629
693
64
642
743
101
742
701
-41
627
681
54
603
643
40
430
469
39
738
743
5
626
661
35
Source: USDA, NASS, Crop Production, August 6, 2001
Upland Cotton Estimated Production by Southern Region State, 2000 and 2001
State
2000
2001
Change
(Thousand Bales)
(%)
Alabama
543
860
58%
Florida
106
168
58%
Georgia
1,663
2,110
27%
Louisiana
911
1,300
43%
Mississippi
1,731
2,600
50%
N. Carolina
1,429
1,540
8%
S. Carolina
379
420
11%
Tennessee
710
810
14%
Texas
3,940
4,400
12%
Virginia
166
161
-3%
Total Southern Region
11,578
14,369
24%
Total US
16,799
19,410
16%
Percent Southern Region of US
72%
74%
Source: USDA, NASS, Crop Production, August 6, 2001
U.S. Cotton Production
Million Bales
21
Million Bales
19
17
15
13
11
9
7
91
93
95
97
Crop Year
99
2001
U.S. Cotton Production
Million Bales
21
Million Bales
19
17
15
13
11
9
7
76
79
82
85
88
91
Crop Year
94
97
2000
U.S. Cotton Supply
10 15 20 25
5
Crop Year
PRODUCTION
CARRY IN
20
00
20
01
99
98
97
96
95
94
93
92
91
90
0
Million Bales
Million Bales
U.S. Cotton Supply
10 15 20 25
5
Crop Year
PRODUCTION
CARRY IN
20
01
99
97
95
93
91
89
87
85
83
81
79
77
0
Million Bales
Million Bales
U.S. Cotton Uses
Million Bales
Million Bales
25
20
15
10
5
0
90
91
92
93
94
95
96
Crop Years
Mill Use
Export
97
98
99 2000 2001
U.S. Cotton Uses
Million Bales
Million Bales
25
20
15
10
5
0
77
79
81
83
85
87
89
91
Crop Years
Mill Use
Export
93
95
97
99 2001
U.S. Cotton Ending Stocks
Million Bales
Million Bales
9
8
7
6
5
4
3
2
1
0
91
93
95
97
Crop Year
99
2001
U.S. Cotton Ending Stocks
Million Bales
Million Bales
10
9
8
7
6
5
4
3
2
1
0
77
80
83
86
89
Crop Year
92
95
98
2001
U.S. Cotton
Percent
Stocks-to-Use Ratio
50
45
40
35
30
25
20
15
10
5
0
91
93
95
97
Crop Year
99
2001
U.S. Cotton
Stocks-to-Use Ratio
120
Percent
100
80
60
40
20
0
76
79
82
85
88
91
Crop Year
94
97
2000
U.S. Cotton
60
50
40
30
20
Crop Year
Price
Stocks
20
00
98
96
94
92
90
88
10
Stocks-to-Use Ratio
0.80
0.70
0.60
0.50
0.40
0.30
0.20
0.10
0.00
86
Cents per Pound
Price Vs. Stocks-to-Use Ratio
U.S. Cotton Prices
Crop Year Average
0.80
Cents Per Pound
0.70
0.60
0.50
0.40
0.30
0.20
0.10
0.00
90
91
92
93
94
95
96
Crop Year
97
98
99 2000 2001
U.S. Cotton Prices
Crop Year
20
01
99
97
95
93
91
89
87
85
83
81
79
0.80
0.70
0.60
0.50
0.40
0.30
0.20
0.10
0.00
77
Cents Per Pound
Crop Year Average
Jul-02 Cotton Probabilities
(June 20, 2002 Expiration)
Probability That Futures Price Will Be Less Than:
100%
92.2%
86.3%
90%
Cumulative Probability of
Futures Price Occurring at Expiration
95.9%
77.3%
80%
65.0%
70%
60%
50.0%
50%
40%
33.9%
30%
19.2%
20%
8.5%
10%
0.5%
2.6%
0%
$0.25
$0.28
$0.31
$0.34
$0.37
$0.40
$0.43
Futures Price at Option Expiration
$0.46
$0.49
$0.52
$0.55
5 cents
Cotton Seasonal Price Tendencies
December Futures Contract
Percent of Season Average
105
103
101
99
97
95
JAN FEB MAR APR MAY JUN
JUL AUG SEP OCT NOV DEC
AWP less Nearby Futures Basis 1998-2001
Months
Aug
Sep
Oct
Nov
Dec
Jan
Feb
Mar
Apr
May
Jun
Jul
Futures
98 to 00
Contract Month 1998/1999 1999/2000 2000/2001 Average
Oct
-19.56
-15.13
-15.33
-16.67
Oct
-19.99
-14.89
-15.56
-16.81
Dec
-21.11
-19.39
-16.21
-18.90
Dec
-21.63
-18.27
-15.51
-18.47
Mar
-19.28
-19.31
-12.98
-17.19
Mar
-17.63
-22.69
-9.78
-16.70
Mar
-17.51
-17.71
-10.71
-15.31
May
-20.81
-17.60
-8.76
-15.72
May
-16.26
-11.33
-7.66
-11.75
Jul
-12.21
-14.01
-7.25
-11.16
Jul
-11.16
-9.92
-7.07
-9.39
Oct
-9.96
-11.81
-9.36
-10.38
Predicting Loan Deficiency Payments
Crop:
Cotton
AWP Basis:
-$0.16
Loan Rate:
$0.52
Increment:
$0.01
Predicted
Futures:
Predicted
$0.20
Predicted
Futures
LDP
Futures
LDP
Futures
LDP
$0.20
$0.48
$0.34
$0.34
$0.48
$0.20
$0.21
$0.47
$0.35
$0.33
$0.49
$0.19
$0.22
$0.46
$0.36
$0.32
$0.50
$0.18
$0.23
$0.45
$0.37
$0.31
$0.51
$0.17
$0.24
$0.44
$0.38
$0.30
$0.52
$0.16
$0.25
$0.43
$0.39
$0.29
$0.53
$0.15
$0.26
$0.42
$0.40
$0.28
$0.54
$0.14
$0.27
$0.41
$0.41
$0.27
$0.55
$0.13
$0.28
$0.40
$0.42
$0.26
$0.56
$0.12
$0.29
$0.39
$0.43
$0.25
$0.57
$0.11
$0.30
$0.38
$0.44
$0.24
$0.58
$0.10
$0.31
$0.37
$0.45
$0.23
$0.59
$0.09
$0.32
$0.36
$0.46
$0.22
$0.60
$0.08
$0.33
$0.35
$0.47
$0.21
$0.61
$0.07
$0.34
$0.34
$0.48
$0.20
$0.62
$0.06
Charles Curtis, Extension Economics, Clemson University
Predicting Loan Deficiency Payments
Crop:
Cotton
AWP Basis:
-$0.10
Loan Rate:
$0.52
Increment:
$0.01
Predicted
Futures:
Predicted
$0.20
Predicted
Futures
LDP
Futures
LDP
Futures
LDP
$0.20
$0.42
$0.34
$0.28
$0.48
$0.14
$0.21
$0.41
$0.35
$0.27
$0.49
$0.13
$0.22
$0.40
$0.36
$0.26
$0.50
$0.12
$0.23
$0.39
$0.37
$0.25
$0.51
$0.11
$0.24
$0.38
$0.38
$0.24
$0.52
$0.10
$0.25
$0.37
$0.39
$0.23
$0.53
$0.09
$0.26
$0.36
$0.40
$0.22
$0.54
$0.08
$0.27
$0.35
$0.41
$0.21
$0.55
$0.07
$0.28
$0.34
$0.42
$0.20
$0.56
$0.06
$0.29
$0.33
$0.43
$0.19
$0.57
$0.05
$0.30
$0.32
$0.44
$0.18
$0.58
$0.04
$0.31
$0.31
$0.45
$0.17
$0.59
$0.03
$0.32
$0.30
$0.46
$0.16
$0.60
$0.02
$0.33
$0.29
$0.47
$0.15
$0.61
$0.01
$0.34
$0.28
$0.48
$0.14
$0.62
$0.00
Charles Curtis, Extension Economics, Clemson University
Possible Marketing Strategies
• SELL AT HARVEST
• Sell & be done
• Sell & Buy a Call
– (9/21/01 42 July ’02 call for $0.0240)
• STORE (loan) and SELL LATER
• Nothing till end
• Hedge July ’02
– (9/21/01 July ’02 Futures for $0.3995)
• Put Option
– (9/21/01 40 July ’02 put for $0.0323)
Cash Returns for Different Price Levels:
$0.55
Strategy Return
$0.50
$0.45
$0.40
$0.35
$0.30
$0.25
$0.20
$0.2523
$0.2817
$0.3112
$0.3406
$0.3701
$0.3995
$0.4289
$0.4584
$0.4878
$0.5173
$0.5467
Futures Price Levels
Cash Sale Later
Futures Hedge
Put Option
Sell & Buy Call Option
Ha
Returns for Different Price Levels with LDP:
$0.80
Strategy Return
$0.75
$0.70
$0.65
$0.60
$0.55
$0.50
$0.45
$0.40
$0.2523
$0.2817
$0.3112
$0.3406
$0.3701
$0.3995
$0.4289
$0.4584
$0.4878
$0.5173
$0.5467
Futures Price Levels
Cash Sale Later
Futures Hedge
Put Option
Sell & Buy Call Option
Harvest
Jul-02 Cotton Probabilities
(June 20, 2002 Expiration)
Probability That Futures Price Will Be Less Than:
100%
92.2%
86.3%
90%
Cumulative Probability of
Futures Price Occurring at Expiration
95.9%
77.3%
80%
65.0%
70%
60%
50.0%
50%
40%
33.9%
30%
19.2%
20%
8.5%
10%
0.5%
2.6%
0%
$0.25
$0.28
$0.31
$0.34
$0.37
$0.40
$0.43
Futures Price at Option Expiration
$0.46
$0.49
$0.52
$0.55
Whole Farm Estimate of
LDP Receipts
Crop
Units
Cotton
#/ac
Soybeans
bu/ac
Wheat
bu/ac
Corn
bu/ac
Barley
bu/ac
Oats
bu/ac
Grain Sorghum cwt/ac
Canola
#/ac
Other
units/ac
September 24, 2001
Acres
800
400
0
800
0
0
0
0
0
Estimated
Yield Production LDP rate
650
520,000 $0.2705
30
12,000
$0.84
0
0
$0.10
120
96,000
$0.11
0
0
$0.04
0
0
$0.00
0
0
$0.00
0
0
$0.000
0
0
$0.0000
Total >>>>
Limit >>>>
Total
LDP
$140,660.00
$10,080.00
$0.00
$10,560.00
$0.00
$0.00
$0.00
$0.00
$0.00
$161,300.00
$150,000.00
Acreage Calculator for Loan
Deficiency Payment Limits
Loan Deficiency Payment Rate
Item
400
450
500
550
600
$0.150
2,500
2,222
2,000
1,818
1,667
$0.175
2,143
1,905
1,714
1,558
1,429
$0.200
1,875
1,667
1,500
1,364
1,250
$0.225
1,667
1,481
1,333
1,212
1,111
$0.250
1,500
1,333
1,200
1,091
1,000
$0.275
1,364
1,212
1,091
992
909
$0.300
1,250
1,111
1,000
909
833
$0.325
1,154
1,026
923
839
769
$0.350
1,071
952
857
779
714
650
1,538
1,319
1,154
1,026
923
839
769
710
659
700
1,429
1,224
1,071
952
857
779
714
659
612
750
1,333
1,143
1,000
889
800
727
667
615
571
800
1,250
1,071
938
833
750
682
625
577
536
850
900
950
1,000
1,176
1,111
1,053
1,000
1,008
952
902
857
882
833
789
750
784
741
702
667
706
667
632
600
642
606
574
545
588
556
526
500
543
513
486
462
504
476
451
429
Item (Units)
U.S. Cotton Supply & Utilization, 1997-2001
Estimated Projected
1997
1998
1999
2000
2001
(97-98) (98-99) (99-00) (00-01)
(01-02)
91-00
Recent
Average
2001
Percent of
Average
Planted (MA)
Harvested (MA)
13.90
13.41
13.39
10.68
14.87
13.42
15.52
13.05
16.19
14.14
14.37
12.97
113%
109%
Yield (Lbs/Ac)
673
625
607
632
679
645
105%
Carry In (MBls)
Production (MBls)
Total Supply (MBls)
3.97
18.79
22.77
3.89
13.92
18.25
3.94
16.97
21.00
3.92
17.19
21.12
6.03
19.99
25.56
3.52
17.33
20.99
171%
115%
122%
Mill Use (MBls)
Exports (MBls)
Total Use(MBls)
11.35
7.50
18.85
10.40
4.34
14.75
10.24
6.75
16.99
8.87
6.70
15.57
8.30
9.00
17.50
10.41
6.79
17.21
80%
133%
102%
Ending Stks (MBls)
Stks to Use (% )
3.89
21%
3.94
27%
3.92
23%
6.03
39%
8.70
50%
3.89
23%
223%
214%
Price ($/Lb)
0.652
0.450
0.504
0.602
Source: USDA, WAOB, WASDE 9/14/01 and previous USDA data.
n/a
0.609
n/a