California's San Joaquin Valley cotton industry holds its destiny in its own hands. Not federal farm bills. Not government programs.

Just plain and simple economics.

If the SJV cotton producer can make a profit growing not just cotton, but premium Extra Long Staple (ELS) Pima cotton, the California cotton industry will prosper, according to Supima vice chairman Jeff Elder, vice president of marketing for J.G. Boswell, California's largest Pima producer.

The future of California cotton is Pima cotton, not Acala cotton, according to Elder, who heads Boswell's marketing division. Boswell grows Pima cotton exclusively, gradually switching from Acala cotton after Pima was introduced into the San Joaquin Valley in the mid-1980s.

Elder told growers, merchants and cotton industry suppliers at the '06 Pima Production Summit in Visalia, Calif., recently that the San Joaquin Valley Pima cotton business is in the driver's seat in the worldwide export ELS cotton business. The United States is the world's largest exporter of ELS cotton. It can stay there only if prices support growers. If not, the SJV industry will likely give way to trees, vines and other crops.

SJV cotton acreage once totaled more than 1.2 million acres. Now it is about half that amount, split roughly 50-50 between Acala/upland and ELS Pima. Most predict Pima, which today is selling at prices roughly double upland prices, will become the dominant cotton in the San Joaquin — the costliest area in the U.S. to grow cotton — in the near future.

While the drop in cotton acreage has been as troubling to the industry as it has been dramatic, the future could not look brighter for Pima cotton.

For six years in a row and for 10 of the last 12 seasons, demand for ELS cotton worldwide has exceeded supply. Elder said this marketing season will end with virtually no carryover from about 630,000 bales of U.S. Pima production. He said worldwide demand was there this season for 1 million bales of U.S. Pima.

“We are not producing enough (ELS) cotton to meet demand and prices are moving higher. We hear we are losing products because of higher prices, but products are going away because there is not enough cotton to sustain consumption,” said Elder.

He said the role of the SJV cotton merchant is changing as the valley's cotton industry evolves to a Pima economy from an Acala/upland market.

For 80 years, San Joaquin Valley cotton was set apart from the rest of the U.S. Cotton Belt by its high quality, upland Acala cotton, which has consistently earned a marketplace premium over other U.S. uplands for its longer, stronger fiber. This has changed, partly because other areas of the country are now producing higher quality cottons substitutable for Acala in textile mills.

“With Acala, we are no longer in control. The basis for SJV Acala is determined by what happens in Australia and Texas as what happens in California. If the entire California crop was wiped out by hail, the New York futures could go up, or it could go down,” said Elder.

“The success of the California cotton industry in the future will be determined by the success of Pima cotton,” he added.

There is no government farm program underpinning Pima cotton like upland cotton, except for a minimal ELS federal loan program that today is about 50 cents under current market prices of $1.25 cents per pound, and a federally funded market enhancement program.

The role of the cotton merchant changes in marketing Pima cotton. With Acala/upland, the merchant gets the buyer and seller together and “hopefully make a profit for the grower.”

The emphasis on selling Pima cotton is to “maintain the health of the cotton grower,” said Elder. “Anyone can sell Pima cotton by discounting it 5 cents per pound, but that 5 cents may be the difference between that grower growing Pima next year or planting trees.”

The price of California Pima cotton is “whatever the cheapest guy is selling it for.” Rather than selling on price, Elder says the emphasis should be on promoting American Pima; promoting the health of the cotton industry and making the world dependent on California for high quality Pima cotton.

“California produces a good product that is in high demand and short supply. As an industry, we should not have to sell that product at a loss to growers,” he said.

Although Elder did not draw a parallel between California almonds and California Pima cotton, the similarities are striking. California is almost the exclusive supplier of almonds to a world market just like it is with Pima cotton.

About six years ago when the almond marketers were battling each other and cutting prices, they decided to reverse that practice by collectively evaluating markets and significantly increasing prices to buyers and raising prices paid to producers. The result was three record production years coupled with three years of record prices. Although almond production fell in 2005, prices were the highest ever. Forecasters are calling for the fourth billion pound almond production year this season in the past five years, and prices remain strong for growers.

Pima cotton does not have a mandatory marketing order like almonds, but it has a voluntary organization, Supima, that is supported by virtually 100 percent of the industry.

“California cotton growers have done the right thing by investing in Supima,” said Elder who called it “very significant” that Supima will collect $1 million this year, primarily from licensing fees charged mills who want to carry the Supima logo. This money will be used to increase consumer demand for Pima and hopefully force mills paying licensing fees to buy more Pima.

Supima has 230 licensees in 22 nations.

This promotional effort is bolstered by continued improvement in strength, length and cleanliness of American Pima cotton. This is resulting in significant premiums in the marketplace. Last year, American Pima was selling at a 3 to 4 cents per-pound premium over a comparable Egyptian cotton. This year, that premium has widened to 18 to 20 cents per pound.

Prices for American Pima should remain in the $1.25 to $1.40 cents per pound for the '05 crop. Elder admitted these prices have cost Pima markets, but it has been in the lower end of the marketplace, as in toweling.

However, the growth in Pima products is higher quality products than toweling, like new shirting fabrics, 400 to 600 thread count sheets and higher end denim products made with ELS cotton.

Elder admits there are “significant price points” in marketing Pima, but “I don't see how someone who makes and sells $250 Pima jeans cares if Pima is trading at $1.10 or $1.30.”

He also admitted that expensive jeans do not represent the bulk of the Pima business, but “it is what the Supima organization is trying to move us toward and is one reason why I am very optimistic about the future of Pima cotton.”

Resistance was evident when prices jumped from 80 to 90 cents per pound last year to $1.30 to $1.40 this year. Some of that was pushed into the supply chain, but not all.

“Pima's customers are in better positions today than they were six months ago,” he added.

The biggest customer for American Pima is China, which has gone from a 3,000-bale U.S. ELS customer five years ago to a potential 400,000 to 500,000-bale customer, according to Supima executive vice president Marc Lewkowitz. Through May 18 this year, China had imported 236,000 bales of U.S. ELS cotton, 45 percent of the American Pima 2005 production.

Lewkowitz recently returned from China and is more optimistic than ever about the future of Pima cotton products there where the economy is growing an unbelievable pace (10 percent in the first quarter of '06 alone), creating a new-wealth consumer base demanding higher quality goods.

In the United States and other parts of the world, Supima labeling and Pima cotton products compete with Egyptian cotton. This is not the case in China where Egyptian cotton is not known.

The market/branding potential for Supima in China as the “luxury product of choice” is huge and Chinese mills are eager to promote Supima in the marketplace, said Lewkowitz.

China has displaced Peru, Taiwan and Pakistan as key Pima markets. These three countries imported almost 300,000 bales two years ago. This year it fell to 24,000 bales.

Elder said the “logical explanation” for this is that China has stolen market shares from these three countries. However, Elder believes the problem has been these countries “over-purchased” to beat increasing prices. Elder believes Pima purchases will increase in those countries, especially Pakistan which he expects to return to the marketplace as a buyer of 100,000 bales annually.

Mill buyers and marketers are still trying to figure out how much Pima was planted in the San Joaquin this season after a long, wet spring season. USDA estimates 290,000 acres, up from 230,000 last year. While most do not agree with that, a few do because of the low upland/Acala prices.

Elder pegs the acreage at 240,000. “Everybody planted the Pima they wanted to plant,” said Elder. Lewkowitz says 230,000 and Earl Williams, president of California Cotton Ginners and Growers Association, says 260,000.

“We will probably have a bigger crop this year,” said Elder. “I am not going overseas and tell our customers we will have a 750,000 bale crop. We still have a long way to go.

“If we have 50,000 to 70,000 bales more this season, it will be about the same supply we had to meet demand last season,” he added. “Supplies will be very tight.”

As the industry rides an unprecedented wave of prosperity, Elder warns that the future may not always be this bright every season.

“Pima has a natural hedge. When there are big crops, prices go down and prices go up with a small crop. The mills will always be there to buy the crop. The question is will be cotton farmer still be there.”

He says textile mills do not understand nor care about the economics of California cotton growing. They simply push the price, and if the Pima merchandisers cave in, the merchant could be without both cotton grower and mill customers.

In the overall scheme of world cotton, Pima/ELS cotton represents only 3 percent of the total market. Move that up to 4 percent and it remains insignificant in the overall scheme of things.

However, this 1 percent represents a potential 33 percent increase in demand for American Pima/ELS cotton. That is more than enough incentive to protect the health of the San Joaquin Valley cotton grower, says Elder.