Starkly few Californians and Arizonans were at the Beltwide Cotton Conferences this year in San Antonio, Texas, where more than 3,000 cotton producers, consultants, researchers and industry suppliers gathered searching for answers to what happened to their markets and for routes out of one of the bleakest economic periods in U.S. cotton’s history.

The industry was looking for some good news, but it found little. Most learned if there is to be a ray of monetary sunshine, it will not likely come until 2010.

It is so bad that cotton acreage in California and Arizona could fall to an unbelievable low of just 300,000 acres in 2009 in the Far West. This in a two-state cotton producing area that at one time boasted a combined total of two million acres of cotton.

Cotton has gone from a primary crop in Western agriculture to almost pariah status due to collapsing prices and other devastating factors.

If there is a bright spot, it is Arizona where for the first time in decades there was more upland cotton than in California.

And Arizona may increase acreage in 2009, according to Randy Norton, University of Arizona Extension cotton specialist. The more realistic projection is for it to maintain 2008 acreage levels this season.

However, Arizona growers are “encouraged” by the softening of input costs, particularly fertilizer and diesel fuel, said Norton.

In visiting with growers to prepare the West’s report at Beltwide, Norton noted an “increased optimism” for cotton’s future in the Grand Canyon state. A lack of small grain contracts may actually lead to an increase in cotton acreage this season, he predicted.

Significantly higher Pima prices compared to upland have prompted calls to Norton from growers seeking Pima variety recommendations for 2009. There was less than 1,000 acres of Pima in the state last year.

In early January, Norton relayed California cotton specialist Bob Hutmacher’s optimistic prediction that California’s cotton acreage could remain stable in 2009 at the 2008 levels of 270,000 acres (117,000 Acala/upland and 151,000 Pima). However, since the Beltwide Conferences, rain and snowfall in the state have been minimal and predictions for 2009 have dipped as low as 150,000 acres total.

National Cotton Council economist Gary Adams reported production costs went up an average of $100 per acre between 2006 and 2008. Production costs should stumble back to 2007 levels of roughly $435 per acre, about $65 less than 2008, due primarily to lower fertilizer and fuel costs.

The rest of the news from Beltwide was mostly bad. It ranged from discussions about worldwide economic disarray; worldwide declining cotton consumption and a U.S. futures/options market that in a two-day period in March wiped out 35 percent to 40 percent of the world cotton merchandising community and badly damaged the confidence the world once had in the New York Futures Market.

U.S. growers are coming off a year where the December 2008 futures contract moved from 90 cents to 40 cents, an unprecedented swing that created chaos. At the same time, cotton also felt downward pressure from a floundering world economy and falling demand. Unfortunately, cotton stocks were high moving into this down cycle, and Adams predicts the downturn in demand will lead only to a modest decline in those stocks.

Uncertainty seemed to be the keyword among growers at Beltwide. Adams reflected that when he said, “I don’t think any decisions are set in stone at this point. Many will take a wait-and-see approach before making final 2009 planting decisions.”

Adams was not optimistic about short-term cotton prices making planting time decisions any easier. “However, as this past year so clearly illustrated, the landscape can and does change quickly.”

Cotton acreage has dramatically declined throughout the U.S. Cotton Belt, but nowhere as sharply as in the West. All other areas of the Cotton Belt have far fewer crop alternatives than in Arizona and particularly California, where growers are fleeing from cotton to other crops like rats escaping a burning building.

Mechel Paggi, director for the Center for Agricultural Business at California State University, Fresno, told the economic conference at Beltwide that cotton is having a difficult time competing with other California crops.

“With water being scarce and expensive, high value crops like almonds and grapes are being maintained at the expense of crops like cotton,” Paggi said.

With California going into its third drought year compounded by fish-protecting environmental rulings that limit water deliveries, Paggi says growers must calculate the biggest return per acre foot of water available. Cotton comes out on the short end of that equation.

“It just doesn’t seem to be getting any better any time soon,” he added.

Paggi reported that the estimated losses from the 2008 drought totaled almost $260 million in California, up almost $15 million from a July 2008 report. Cotton’s losses represent $61.5 million of the total.

More than 48,000 acres of cotton were unplanted or abandoned due to a lack of water in 2008.

Paggi says California’s rapidly disappearing cotton acreage has reached a critical point where the industry’s infrastructure may be in peril for the time if and when cotton acreage rebounds.

He cited the decline in gins. Two years ago there were 61 active gins. Last September that number was down to 37 (14 saw gins; 16 roller gins and 7 combo gins where roller and saw gin stands operate).

“Cotton gins are one thing, but if we lose human capital in terms of scientists working on new varieties, pest control, and precision farming techniques — my fear is that we will loose them for good,” Paggi said.

“Maybe things will change if we get the moisture we need and the courts free up water flows from the north. However, I remain concerned.”

The economic crisis and resulting drop in spending by consumers is a worldwide issue affecting all commodities, but cotton suffered a devastating blow during a two-day span in March when cotton prices skyrocketed on the first days of electronic futures trading.

The result saw cotton prices all over the board, according to Gary Taylor, president of Cargill Cotton. Cotton prices went as high as $1.08 per pound, but growers could not sell because of the chaos.

The result was 35 percent to 40 percent of the world’s cotton merchandising firms went out of business virtually overnight because of unmet margin calls and the world lost confidence in the New York Futures market.

Taylor said if there is a “villain” in the cotton market catastrophe, it was the hedge funds which moved massive amounts of money into the market to protect against inflation.

One of those funds is based in California. It is CALPERS, the largest pension fund in the nation with more than $177 billion in assets providing pension benefits to 1.6 million current and former employees of the state of California and many local California governments and school districts.

Taylor does not believe CALPERS was the primary culprit, since he says CALPERS moved money into the commodities market very slowly.

Pension and mutual funds moved huge piles of cash into the commodities market to protect against expected inflation. The result was a totally skewed cotton market that devastated the cotton merchandising industry.

Unlike cotton merchandisers, these huge hedge funds do not have to report positions to the Commodity Futures Trading Commission. “That needs to change,” according to Taylor, who is hopeful that that will be one of the changes as a result of the ongoing CFTC investigation.

Already, CFTC has uncovered cotton market hedgers were hiding in these hedge funds and were out of compliance with market speculation limits.

“The market is clearly suffering a confidence crisis.

There needs to be improved transparency of positions and the monitoring of speculative limits.”

Taylor said it will be “very interesting” when the CFTC report comes out. “We may well be able to find out who did the trading and who caused what happened to happen.

“The merchant community wants to get to the bottom of what happened as much as you (growers) do and put safeguards in place” to prevent it from happening again.

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