High Quality Drives Demand for U.S. Cotton

Many experts agree that cotton will stay at $1.00 per pound or more through the next crop cycle. Unfortunately, that leads some industry stakeholders to believe that quality is less important at $1.00 per pound than it is $0.65 per pound. With some markets desperately seeking and buying any cotton they can find just to fill their orders, this attitude might appear to hold some credence, but nothing could be further from the truth.

Over the last few years, the U.S. crop has become more and more dependent on export markets. If domestic cotton consumption holds steady at 3.5 million bales, domestic production will require export market access for more than 80% of the U.S. crop. Over this time period, the export market has increased its demand for upper-end upland cotton, even as total demand has dropped. The United States must not forget the importance of quality to its largest markets.

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The current strong demand and high prices will likely buy back significant cotton acres from competitive crops. It would, however, be a big mistake to assume our export customers will buy whatever quality we produce once the current supply situation has moderated.

Yield is always a primary focus for a cotton producer, but over the last few years new varieties have enabled U.S. growers to focus on both yield and quality. This has rewarded producers with more than just the premiums associated with better high-volume instrument (HVI) measurements. Improved HVI grades, as well as improved quality measurements beyond HVI parameters, have resulted in dramatic improvement in demand for cotton from specific U.S. regions where quality upland cotton is produced. U.S. cotton has a better quality reputation today than it did only a few years ago.

While it is important for producers not to abandon quality as an objective, stakeholders at the other end of the supply chain must also acknowledge the importance of quality. The price differential between upper-end upland and traditional grades of upland cotton must reflect the relative importance that mills assign to quality. If mills and cotton buyers are not willing to pay for quality, the producer will assume it is not important to them.

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To keep the current situation in perspective, it is helpful to keep in mind the volatility in cotton production. The U.S. harvested an estimated 18 million bales from the 2010 crop. Only one year ago, the U.S. Department of Agriculture believed the U.S. production for 2010 could be as low as 13 million bales. Anticipated demand, cotton price and prices for other commodities resulted in sufficient acres planted to avoid a supply/demand disaster. Favorable weather in much of the U.S. Cotton Belt resulted in a bumper crop, but imagine the consequences if the United States had produced 5 million fewer bales in 2010.

Nothing about the future of the global cotton market is certain except the assurance that we will see volatility in prices and production. Despite these uncertainties, quality will be critical to maintaining demand and market access for the U.S. crop. The U.S. cotton industry must not abandon the quality that helped create the demand for U.S. exports.

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