At the same time, the Asian financial crisis devalued the currencies of some of our best export buyers. Forty percent of the world's current cotton carryover resides in China. China will have a huge influence on the global cotton economy for many years to come. Adoption of a market-oriented farm policy in the United States helped reduce U.S. cotton stocks, but the loss of cotton export enhancement funds more than offsets that gain, Stanford said. Such a scenario, plus USDA's forecast for higher cotton imports before the 1998-99 marketing year ends in July, could make May and July 1999 cotton futures especially volatile.
Volatile markets attract imports and tend to push prices lower.
Buying put options on New York futures will provide better price protection than relying on marketing loan, loan deficiency or producer option payments. Put options will give you some downside price protection in the current market, and still leave the door open for you to capture a higher price if the market moves up. The rewards of hedging simply may not outweigh the risk this year.