Cotton Benefits From Spike in Grain Price
February 26, 2009 The sharp increase in grain prices has “opened the door” for cotton growers to adjust acreage in line with export demand. The international market is using the U.S. as the primary residual supplier for foreign import demand. As a result, the U.S. cotton industry is funding most of the storage costs of excess world stocks.
The burden of year-long storage will continue until the U.S. cotton surplus is cut by more than half from the 9.5 million bales estimated in May. This is the largest carryover in 40 years. Increased yields the last three seasons have boosted U.S. production well ahead of export demand. The higher yields are likely to continue.
The merger of Monsanto and D&PL will bring together substantial human and capital resources focused on research and development of improved cotton yields and fiber quality.
Higher grain prices provide a market-driven opportunity to reduce cotton acreage below 12 million acres, yet maintain sufficient stocks to meet export demand. Despite growing foreign use, the export market has failed to draw down U.S. stocks.
Since the 2003/04 season, foreign use has increased from 92 million bales to a projected 122 million bales this year. The 30 million bale expansion in foreign use has been partly offset by a 20 million bale increase in production.
A large 2004 U.S. cotton crop of 23 million bales, with only 6.7 million of domestic use, set the stage for a 10-million-bale increase (23%) in world carryover stocks to 54 million. World stocks have essentially remained excessive since then. The “A” Index in 2004 dropped 16 cents (23%) from 69 cents to 53 cents. The “A” Index has struggled to regain only 6 cents in the following two years. Last year’s U.S. crop exceeds expected use by nearly 20%.
Storage costs have skyrocketed. The U.S. industry has the opportunity to slash acreage and adjust supply in line with export demand. Much of the financial burden has fallen on the Commodity Credit Corporation Loan program. The storage program allows growers to take advantage of seasonal price rallies after harvest for nine months. But, the export-driven market does not follow any dependable price pattern. Price rallies will develop only when stocks are in balance with foreign demand.
West Africa Cotton In Crisis, Bt Still Far Off
Four years of low prices and growing deficits have taken a toll on the West African cotton industry. According to the U.S. Department of Agriculture’s Foreign Agriculture Service (USDA-FAS), seed cotton production in 2006/07 in each of the major cotton producing countries has fallen below pre-season targets, due to drops in yield, and in some cases, planted area.
For 2007/08, the outlook is muddied due to further expected declines. Throughout the region, seed, fertilizer and pesticides will be delivered late to farmers. And, prices are shrinking farmer margins while still remaining too high for mills to operate profitably.
Internal inefficiencies in the cotton sector remain unresolved and under-financed. Privatization and structural reforms are moving forward to varying degrees in each country in the region and the financial crisis is often cited as grounds for delaying reforms. Poor roads, poor soils, declining seed quality, lack of storage facilities, aging ginning equipment and a general lack of market-based risk management techniques persist as endemic problems in each country, reports USDA-FAS.
In addition, technology advancements and yield improvements driven to a large extent by the adoption of Bacillus thuringiensis (Bt) cotton in developing countries in South Africa, Asia and Latin America are not yet in use in West Africa.
In a related story, the production of genetically modified (GM) strains of Bt cotton will be delayed until at least 2009 in Burkina Faso, according to the Agence France Presse. Burkina Faso began testing GM cotton in 2003 with the support of Monsanto, becoming the first nation in Africa’s Sahelian region to do so.
GET THE NEWSLETTER TODAY!
