Taking the U.S. Crop to Market
June 30, 2010 It’s possible the effects of the global market rebound are resonating more strongly in the U.S. than in any other region. The increase in projected U.S. cotton acreage is up somewhere in the neighborhood of 15 percent, with U.S. producers hoping to capitalizing on strong prices and market opportunities brought on by short supply.
Cliff White, Senior Vice President at Olam Americas in Richardson, TX, says the good news in the U.S. is good news for the whole industry.
“Given that the U.S. is the major exporting country in the global cotton trade, the rebound in U.S. production makes people feel a lot more confident about the future of the cotton industry as a whole. It’s obviously very pleasing for everyone involved in the U.S. cotton industry to see the rebound in production and a significant increase in crop size for this new crop. It puts us in a good position to participate in the export markets a bit more than we have in the 09/10 season.”
Kevin Brinkley, Vice President of Marketing and Business Development at The Seam in Memphis, TN, says the market upturn will help the U.S. get back to basics.
“We saw a couple of years that really challenged the structural side of the business — from gins to warehouses and beyond. Today, though, I think people are more optimistic than they have been in quite a while. When you look at the whole global picture and the increase in demand for cotton, the United States is positioned very well. Should the world economic recovery continue, the U.S. will be able do what it does best — export a lot of cotton.”
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Who’s Moving U.S. Cotton Cotton International surveyed some of the most influential marketers and merchandisers of U.S. cotton to get their take on the dynamic state of the market. |
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Supima Founded: 1954 Jesse Curlee, President Headquarters: Phoenix, Arizona Supima is the promotional organization of American Pima cotton growers. Marketing: American Pima Cotton Number of Supima Licenses: 350 Share of US Crop: Approximately 3.5 percent of the U.S. crop is Pima cotton Percent of Share Exported: Approximately 95 percent of the U.S. Pima crop is exported |
Jess Smith and Sons Cotton Founded: 1943 Ernst Schroeder Jr., CEO Headquarters: Bakersfield, California Jess Smith and Sons Cotton is a grower direct cotton merchandiser serving the global cotton industry. Marketing: Pima, Upland, Acala, and Fibermax Cotton Members: N/A Share of the U.S. Crop: Varies Percent of Share Exported: Varies |
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Calcot Ltd. Founded: 1927 Jarral Neeper, President Headquarters: Bakersfield, California Calcot Ltd. is a cotton marketing cooperative owned by growers in California, Arizona, New Mexico, and Texas. Marketing: San Joaquin Valley Upland and American Pima Cotton Number of Members: 1200 Share of U.S. Crop: 4 percent to 5 percent Percent of Share Exported: Nearly 100 percent |
Plains Cotton Cooperative Association Founded: 1953 Wally Darneille, President and CEO Headquarters: Lubbock, Texas Plains Cotton Cooperative Association is a grower owned marketing cooperative with members in Texas, Oklahoma, and Kansas. Marketing: Texas-style Upland Cotton Members: 8000 of 25,000 total stockholders are cotton producers Share of the U.S. Crop: 28 percent Percent of Share Exported: 95 percent |
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Carolinas Cotton Growers Cooperative Founded: 1922 J. Michael Quinn, President and CEO Headquarters: Garner, NC Carolinas Cotton Growers Cooperative is a grower owned cooperative of cotton producers from the Southeast and Midsouth region of the U.S. Marketing: Memphis Eastern Upland Cotton Number of Members: 1600 Share of U.S. Crop: 4 percent – 5 percent Percent of Share Exported: 40 percent |
J.G. Boswell Company Founded: 1927 Matt Laughlin, Marketing Manager Headquarters: Pasadena, California J.G. Boswell Company is the largest producer of cotton in the U.S. Marketing: American Pima Cotton Members: N/A Share of U.S. Crop: Approximately 1.2 percent Percent of Share Exported: 95 percent |
To find out how they intend to move this crop to market, Cotton International Magazine caught up with some of the leading marketers and merchandisers in the U.S. Here’s what they had to say.
CI: Cotton prices are now about 25 percent higher than polyester in most markets. Do you see mills shifting away from cotton and increasing man-made fiber (MMF) consumption? How could the industry counter?
Darneille: Relative prices of cotton and polyester differ significantly by market. While the U.S. and European consumers will continue to focus on cotton as the fiber of choice, we would not be surprised to see some increases in MMF consumption in Asian markets. However, the overall demand seems to be growing at such a rate that the absolute level of cotton consumption will continue to increase, even if cotton’s share of the total fiber market declines a little.
Schroeder: Cotton demand is up, not down. In 2009/10, we saw usage up 6 million bales. It is expected that the increase in 2010/11 season will be even larger. Current yarn prices are still allowing mills to maintain their cotton/polyester blends without decreasing their percentage of cotton.
Quinn: Whenever the price disparity between cotton and MMF increases there is always an increase in the blend percentage of MMF. However, consumer demand and preference for cotton will keep the shift in check. Maintaining the consumer demand for cotton is best accomplished through the efforts of Cotton Incorporated.
CI: With the consolidation within the merchant community, has the relationship between merchants and mills changed?
Schroeder: The merchant/mill relationship has evolved into something that is very dynamic and unique. We have a very close working relationship with our customers, almost like a partnership, and it is a very personal relationship. Merchants have evolved to become more than just sellers or raw cotton fibers, they are more knowledgeable with the textile process. We are a trusted advisor and confidant on whom the spinner can depend. The relationship relies more on a personal face-to-face interaction which will become the new standard for future business.
Quinn: Textile mills have always relied upon their core suppliers to have open communications concerning industry issues and not necessarily just focused on negotiating price. Industry consolidation has not changed this relationship, it has just reduced the number of suppliers.
Laughlin: I don’t think we have changed our marketing approach very much. A primary focus remains our relationship with mill customers and better understanding the business of their customers.
Darneille: I do believe that both sides view each other as strategic partners more than in the past. Both mills and merchants need to know they can depend on the sanctity of contracts in volatile times, and they increasingly show a willingness to quantify that strategic importance.
CI: India has just announced it is restricting cotton exports. How can the U.S. cotton industry capitalize on this decision?
Schroeder: This once again shows that for consistent, stable, reliable and contamination-free raw cotton, USA cotton is choice No. 1. With already limited supplies in the world, this further reduces supply sending additional attention to the U.S. remaining stocks. Another point to think about is, does the Indian government’s action send any discouraging signs to Indian farmers for their new crop planting intentions?
Quinn: Any type of government intervention that restricts the normal flow of cotton into marketing channels will create arbitrage opportunities. Having supplies readily available for shipment is an advantage in these situations.
Neeper: The decision makes India an unreliable supplier. In order to induce someone to take a chance on receiving shipment, they are going to have to offer prices cheaper than anyone else. This is mostly in our favor but also is going to be unfavorable because it could have an impact on mills’ decisions.
CI: What do you consider to be any positive outcomes of the difficult period the industry has just sustained?
Curlee: We went through a real downturn in the past few years – it hit us broadside. The pipeline just stopped. Consumers stopped buying. Retailers stopped ordering supplies. Mills stopped ordering supplies. It was tough. But things started picking up again about August or September, 2009. Consumer demand started to increase and the industry is refilling that pipeline again. For our side of the business, that means refilling the stock of extra-long staple cotton. In the short term, I think we’ll see continued improvement at the retail level. Consumers are slowly building their confidence back and they are starting to purchase higher-end goods again.
Schroeder: It seems the worst has passed and things are improving in a positive direction. Mills are very encouraged by better demand for their products even at higher prices. With consumption outpacing production, thus shrinking ending stocks again, prices seem to be re-aligning themselves. Solid and trusted companies are finding that mills are now more cognizant of who they are doing business with, not just the price.
Neeper: This is an unusual time. Cotton prices are high and mills say yarn prices are pretty good and they’re actually making money. Usually, when growers are making money, mills aren’t and when mills are making money, growers aren’t. So this is an unusual circumstance with everyone making money in the textile chain. The world economy contraction dried out the pipeline and now everyone is pretty busy refilling it. When the pipeline does get full, then we have to depend on consumers. And that’s where excitement starts. With their economies growing, look for China and India to divert more production to the domestic market rather than export.
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Brinkley
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Darneille
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Schroeder
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Quinn
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