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Different set of customers Larger cotton exports challenging

It's the old bad-news-good-news story: Consumption of cotton in the United States “is going down, down, down, and the feeling is that we'll lose even more of the American textile industry,” says John Mitchell, Cargill Cotton, Memphis.

On the other hand, cotton exports have soared. “The good news is that total offtake for 2005-2006 will be a record,” and though projections are that 2006-07 offtake will drop slightly, primarily due to smaller crop size, exports are expected to remain quite strong, he told members of the Southern Cotton Ginners Association at their summer meeting at Hot Springs, Ark.

And as exports have increased, a large percentage of that increase has been Mid-South cotton.

“Our farm program today is doing a very good job of balancing offtake with production,” he said.

But the big move of U.S. cotton to the export market has not come without problems and challenges, Mitchell says.

“We're dealing with a different set of customers than the domestic mills that were our primary suppliers for so many years. Foreign mills have different needs and different priorities, and we've got to learn what they want and try to provide it.”

U.S. cotton is gaining new customers every day, he says, particularly in China, and “it would be a mistake to try and generalize their needs. We've got to go in and individually learn what they want.

“There are over 1,000 mills in China, every one with different priorities and needs…and as a merchant supplier, it's our job to uncover those needs and try to meet them.”

Less than 10 years ago, most U.S. cotton was used by domestic mills, Mitchell noted. “Today, our No. 1 customer is China. We think they could buy some 8 million bales before we get to the new crop.”

At the top of the demands list of foreign mills, he says, is quality.

“Most of the cotton Cargill sells in the domestic market is lower grade, discount cotton — what I call denim cotton. The percentage of medium and fine grades we sell domestically is very, very low.

“But the export market wants a lot more fine count cotton. Our sales of high grade cotton today are probably three to four times what they were in 1999. There's still a pretty good demand for coarse grade cotton, primarily because it's cheap.

“So, foreign mills want basically high grade and low grade, and not much in between.”

Until four or five years ago, Mitchell says, “Our message to ginners was, ‘Don't over-gin your cotton.’ But that has changed. Now the demand is for longer staple, cleaner cotton, three-leaf or better, and 35 or longer staple.

“The message now: We've got to re-focus our efforts on producing fine count cotton in order to compete in the world.”

While U.S. mills are more or less locked into buying U.S. cotton, that isn't the case with foreign mills.

“We've got to accept the reality that we're facing increasing competition from the rest of the world — particularly for the China market,” Mitchell says. “We can't take for granted that we'll continue to capture a large chunk of that business each year.

“The former Soviet Union countries, West Africa, Australia, India, Brazil, are all competing for this business. India's cotton production has boomed the last two years, with a remarkable improvement in yields. We're projecting they'll export 3.8 million bales this year, which means they'll have an appetite to export 5 million to 6 million bales next year.”

Gearing up to meet demands of the export market is requiring adjustments in several areas, Mitchell says:

  • Uneven shipping rates: For domestic delivery, shipments go smoothly, but for exports they can be very volatile and erratic. “We have to have the infrastructure and financing to accommodate this kind of delivery volatility.”

  • More complexity: Exports require a lot more documentation and involve more, smaller sales, and waits on letters of credit. And errors are much more costly. “A ship is a moving target in terms of getting everything there and on board in time. Missing a shipping date is very expensive.”

  • Less lead time in shipping: “We're all feeling the pain from this. In 1998-99, there was an average 272-day lead time between date of contract and time loaded on the truck. Everyone's operating more hand to mouth. Now we're down to about 187 days average. Sometimes, it's as short as two or three weeks. I get calls at home at 10 p.m. or 11 p.m., on a take-it or leave-it basis. We do what we have to do to compete.”

Volume and capacity have changed, too, Mitchell says. “Eight years ago, we averaged shipping 340 export container loads a day; last year, we averaged 740. This can place a strain on some warehouses, rail lines, trucking, containers, etc.”

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