Next week is Thanksgiving, and then the holiday season begins. “You get what you get and don’t throw a fit” may be the national holiday motto this year. National shipping companies have been warning of slow holiday shipping since September. You may be shopping for what you can find in stores near you. Fortunately, local shops have lots to offer. Plus, when you shop locally, your community gains not just the sales tax from your purchase, but also jobs and income, property tax, and vibrancy. If you’re avoiding crowds, many small businesses have website and are still offering curbside pickup.
The Small Business Administration (SBA) has co-sponsored Small Business Saturday (with American Express) since 2010. The SBA reported that last year, US consumers spent $19.8 billion at independent retailers and restaurants on Small Business Saturday. Still, a 2019 SBA study showed that 70% of U.S. consumers were unaware of the event. Now you know!
Among Small Business Saturday shoppers in the 2019 survey, 97% agreed that small businesses are essential to their communities. The Small Business & Entrepreneurship Council notes 98% of businesses have fewer than 20 employees (96% have fewer than 10).
A total of 246,601,268 base acres were enrolled in the U.S. in 2021 across 23 covered commodities (Outlaw, Raulston, 2021). The enrolled base acres for the Farm Bill support programs, Agricultural Risk Coverage (ARC-CO) and Price Loss Coverage (PLC), total 244,109,500 for the 2021 program year. The remaining 2,496,768 base acres are enrolled in Agricultural Risk Coverage Individual Coverage (ARC-IC). Price Loss Coverage has the highest share of enrolled base acres at 56.7% followed by ARC-CO at 42.3% and ARC-IC at 1%. The Southern Region (Alabama, Arkansas, Florida, Georgia, Kentucky, Louisiana, Mississippi, North Carolina, Oklahoma, South Carolina, Tennessee, Texas, and Virginia) account for 50,459,856 acres, or 20.6%, of the U.S. total acreage enrolled in PLC, ARC-CO and ARC-IC programs. The share of base acres enrolled by program for the 2021 crop year is 56.7% PLC, 42.3% ARC-CO, and 1.0% ARC-IC.
The share of base acres enrolled in 2021 between ARC-CO and PLC is shown in Table 1. The crop with highest percentage of base acres enrolled in ARC-CO for the U.S. is soybeans at 87.2%. The next closest crop in terms of share is corn at 48.4%. The crops with the highest percentage enrolled in PLC is long grain rice at 99.8% followed by peanuts at 99.7%, seed cotton at 91.2%, and grain sorghum at 73.75%.
Table 1. Share of Enrolled Base Acres by Crop for the 2021 Program Year.
The seven major program crops shown in Table 1 account for 98.7% of total base acres enrolled in the South according to Outlaw and Raulston. The three southern crops of long grain rice, peanuts, and seed cotton range from 90% to 99% enrolled in PLC and drive the U.S. total. Comparing the South to the U.S. for the other four crops shows the South trends with the U.S. in the share of ARC-CO and PLC enrolled base acres. The biggest differences are two percentage points higher in the South for corn ARC-CO, grain sorghum PLC, and wheat PLC. The 2018 Farm Bill allows farm operators to make program election changes in crop years 2021, 2022, and 2023 for ARC-CO and PLC.
As harvest finishes up during the month of November, farms can assess how they fared for the year, and more importantly, make plans for next year. Compared to this time last year, farm inputs are up sharply; meaning planning for the 2022 crop year is more important than ever to be sure risks are managed.
Taking a look at year over year changes in fertilizer and energy prices in the southeastern United States, one can see a dramatic increase. Data on average weekly prices for common fertilizers show an increase in the price of DAP by 75%, UAN by 91%, and Potash by 107%. Farm diesel is up 73% and LP is up 85%. Given the cold weather season hasn’t really started yet, energy prices are expected to stay up. Given demand for fertilizers is up while supply concerns exist, there is no indication that fertilizer prices will soften either. Other inputs like machinery and equipment, labor, and chemicals are also expected to be up.
What does this mean for the farmer? Margins will be tighter next year. Farmers will need to know their cost of production to help manage their risks. Using enterprise budgets can help estimate cost of production. Fortunately, university Extension agricultural economists develop enterprise budgets each year as a guide for farmers to modify to reflect their specific production practices. After farmers calculate an estimate of their costs, they can determine the breakeven price and yield needed for their crop to cover those costs.
Year over Year Prices for Energy Inputs in the Southeast, Nov. 6, 2020, to Nov. 5, 2021
Chart Source: Author compiled with data from USDA Market News with State Departments of Agriculture from Alabama, North Carolina, and South Carolina
USDA’s November Cattle on Feed report comes out Friday, November 19th. The report is expected to indicate that about 3.6 percent more cattle were placed on feed in October than last October. Placements usually increase in the Fall to a peak in October. The South is a major calf producing region supplying feeder cattle to feedlots throughout cattle feeding country. On average, over the last few years, 73,726 cattle have entered Texas from Southern states in October. That data is from the Texas Animal Health Commission and represents non-breeding cattle in-shipments to the state with a veterinary certificate. It does not mean that all those cattle went directly to feedyards and it is likely an undercount of all cattle coming into Texas. Drought in some parts of the country and higher fed cattle prices are supporting placements.
Feedyard marketings are expected to be below last October by about 4.2 percent but, the decline in marketings is due to one less working, or slaughter, day in October 2021 versus October 2020. Daily average marketings should be about the same as a year ago. The combination of marketings and placements leaves the number of cattle on feed on November 1st at 99.9 percent of last year.
A lot of factors are at work in determining Southern calf prices, like higher fuel costs for trucking, higher fertilizer prices, and higher hay prices. Higher fed cattle prices are boosting the demand for calves and supporting prices.
If you drive around the countryside in the Cotton Belt in October and November, you will encounter snow white cotton ready to be harvested. This is the busiest time of the year for cotton producers and when they receive the reward for a hard year’s work. For many producers, this year’s harvest combines good yields and good prices, which is rare for cotton producers.
The USDA Crop Progress report, released on November 8, 2021, indicated 98 percent of cotton bolls opened nationwide, with 55 percent of cotton acres harvested. Crop condition has remained steady this year, with greater than 60 percent of cotton rated in good-to-excellent condition since the end of July. The November 2021 USDA World Agricultural Supply and Demand Estimates (WASDE) report projected U.S. cotton production at 18.2 million bales this year, slightly over the U.S. cotton demand – 15.5 million bales of exports and 2.5 million bales of domestic mill use. The U.S. ending stocks-to-use ratio is forecast at 18.9 percent for the 2021/22 marketing year, slightly above last season, but below each of the previous three years. Globally, 2021 cotton production is projected at 121.8 million bales, which is 9.6 million bales greater than last year. World cotton mill use is projected slightly higher than production at 124.1 million bales, 3.2 million bales above last season, and the second largest on record.
Current supply and demand fundamentals support high cotton prices. However, it is hard for cotton supply and demand fundamentals to explain the recent price surge. Since the middle of September, cotton prices skyrocketed, with December Futures rising from the mid-90 cents per pound to a high of 121.67 cents per pound on November 2, 2021. If supply and demand fundamentals cannot explain the price increase, then what could be the cause of the recent price surge?
Historically, cotton prices tend to follow the stock market, with a rise in cotton prices when the stock market rises and a decline in cotton prices when the stock market drops. Cotton markets have been on an upward trajectory since April 2020, with a recovery of futures prices from the low 50 cents per pound to over 100 cents per pound starting in October 2021. In recent weeks, the stock market has been on a roller coaster ride (Figure 1). As money flows out of the stock market seeking the next opportunity for a short-term gain, other markets like cotton can experience an inflow of speculative money, pushing prices higher. This flow of money into cotton markets has pushed prices to levels that exceed those indicated by supply and demand fundamentals, creating a potential marketing opportunity for cotton producers. However, the flow of money in and out of cotton markets can also make prices unpredictable and volatile, thus making it difficult for producers to predict the direction of cotton prices. Speculative money could continue to push cotton prices higher; however, when speculative money leaves cotton markets, prices will fall sharply (possibly with a temporary correction below the price supported by global cotton supply and demand fundamentals). For now, producers may want to consider completing 2021 crop marketing at very robust price levels.
Figure 1. Cotton 2021 December Future Prices (Blue Area) and S&P 500 Index (Blue Line).
Recommended citation format: Liu, Yangxuan. “Did Speculative Money Cause the Recent Surge in Cotton Futures Prices?” Southern Ag Today 1(47.1). November 15, 2021. Permalink
