May 8, 2009
The global economic shakeup over the past year has created well-publicized spikes in fertilizer prices, has played havoc with the commodity market, and has placed too many farmers in too high a risk situation to borrow money for their farming operation.
In the Southeast, peanut and cotton farmers have been in particular peril created by the volatility in worldwide financial markets. Though there is clearly plenty of room for debate, perhaps none have been so negatively impacted as the cotton industry — from top-to-bottom.
The worldwide recession has pushed down demand for cotton products, along with other natural fibers and synthetic fibers. The drop in demand has pushed cotton prices down to near historic lows.
In 1996, cotton prices averaged $1.08 per pound. In 2002, the average price was 29 cents a pound — the benchmark low price. Last year prices rebounded to 70 cents a pound and as of late April 2009, cotton prices stood at 47 cents per pound.
In 2009/10, world cotton production is expected to continue to decline, for the third consecutive season, to 23.6 million tons. World cotton mill use is forecast stable at 23.7 million tons in 2009/10, while world cotton imports are expected to increase to 7.3 million tons. World ending stocks are expected to decline slightly to 12.5 million tons by the end of July 2010.
Cotton is one of few crops that has a non-agricultural competitor — and a strong one in synthetic fabrics. Competition among these non-agricultural fabrics further pushes synthetics down, and along with synthetics down go cotton prices.
It is no secret U.S. cotton farmers are affected, both good and bad, by the world market. Just over a decade ago, U.S. textile mills still used 11 million bales of cotton. In 2008, the domestic market used less than three million bales.
Despite an overall slide in demand for cotton products worldwide, the demand for cotton in the U.S. has continued to grow. Without the growth in demand for cotton products by U.S. consumers, U.S. cotton producers would be in a significantly worse position economically.
The affect that a continued slide in cotton acreage will have on the infrastructure of the cotton industry is not known, but clearly is not good. Cotton gins have to have cotton to make money — fewer growers, fewer acres, fewer gins.
Closing a cotton gin down can be a debilitating economic hit for small, rural Southeastern communities. Building a new gin with the current financial limitations is virtually impossible.
One of the best commodity support groups, Cotton Incorporated, is already feeling the pinch of lower prices and less cotton in the U.S. That’s just a love-pinch compared to what is coming for 2010.
In 2009, Cotton Incorporated will work with a $81 million dollar budget — a high point for the organization. In 2010, Cotton Incorporated’s budget will be cut to $67 million. This cut should not be over-looked by cotton farmers, because Cotton Incorporated is the primary reason demand for cotton products in the U.S. has continued to grow. Perhaps more importantly, Cotton Incorporated’s work in China and other cotton-producing countries has kept demand for raw cotton and cotton products from falling faster than other fibers.
Cotton Incorporated CEO Berrye Worsham says his company is in the process of a serious re-evaluation of their goals and opportunities. “We will be a different company in the future,” says Worsham, who served as a CI economist for a number of years prior to becoming the CEO.
The ability of the cotton industry to keep demand high for its products will be a significant key to profitability, if not the survivability of the cotton industry in the Southeast. Growing the right kind of cotton for foreign mills is important to survivability, but it pales in the significance of the cotton industry to continue to develop cotton products that have global appeal to consumers.
I’m not expecting King Cotton to reclaim his crown in 2009, but I will be surprised if cotton acreage is lower in 2009 than in 2008. Despite the relatively low price for cotton, projected anywhere from 45 cents to 65 cents a pound, cotton is still a good option for hundreds of thousands of acres that are likely to come out of peanut production.
At the time the USDA did its crop intentions survey (around March 1), no peanut grower had a contract, but most planned to plant peanuts. After contracts came out — reduced acreage and 45 cents above loan value ($385 a ton) or runner-type peanuts and 90 cents above loan value ($445) per ton for Virginia-type peanuts — many growers simply could not follow through on their intention to plant peanuts. The result will be more cotton than expected, but whether it will be enough to keep cotton gins going and cotton support organizations operating at anything near needed efficiency remains to be seen.
The good news is that there is plenty of cotton seed available and a number of new varieties that give growers their best ever chance to grow high quality and high yielding cotton. For growers who have cotton harvesting equipment, filling the void in peanut acreage is a cost-effective option.
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