Associations Have Near-Term Challenges In Sharp Focus
March 2, 2009 Craig Stevens, President
Western Cotton Association
When I was asked to write for this column last year, I wrote that Pima acres were expected to soar to 50% of the overall cotton production in the San Joaquin Valley. At the time it seemed an almost unbelievable notion that Pima would actually become the king of the hill. We knew that it could happen, and that someday it probably would happen, it just seemed strange to put it into words.
It doesn’t feel strange anymore. The March USDA planting estimates have California, Arizona and New Mexico planting a combined total of 692,000 acres of cotton. California is expected to plant 250,000 acres of Pima and only 210,000 acres of Upland.
On the surface it appears that Pima has made great strides. However, in reality, it is Upland acres that have been on the decline in the West. Pima has been holding steady. Traditional Upland cotton just hasn’t been attractive enough to Western area growers when they compare it to competing crops. Corn has now created a similar situation for acres across the entire Cotton Belt.
I believe that this competition for acres is good thing. Maybe we can begin to work off our estimated 9.2 million bales of ending stocks and at the same time create a healthier market for cotton, even Pima.
John King, President
Southern Cotton Association
With cotton acres projected to be down 3.06 million acres from last year, the U.S. could still produce 19 million bales depending on weather conditions.
Current supply/demand numbers for the 2006/07 U.S. crop are estimated at 8.8 million bales which will be carried into this crop year giving the U.S. total supplies of 27.8 million bales. If we assume for a minute that new crop demand for the U.S. could be two million bales higher than this year, at 21 million bales, we will still be looking at a carryout number for 2007/08 crop at around 6.8 million bales. This would result in higher ending stocks than were traded last year.
During the last two years, the spot-month N.Y. futures has traded between 45-58 cents, which has made trading loan options very difficult, especially after the loss of Step 2. Cheap market prices, coupled with some Delta warehouses with very high tariff rates, make achieving any kind of loan option value very difficult. I applaud the warehousemen that have worked to keep their tariff down, giving their producers a better opportunity to market their cotton. The U.S. will have to find a way to get cotton out of the loan and into marketing channels which should allow for higher prices down the road.
We will be in a transitional period over the next year trying to work out a new farm program which will shape our industry for the next several years, and it will be important for all of us in the cotton industry to work together for a farm program that works for all of us. In my visits to Washington over the past year representing the Southern Cotton Association, I have heard our senators and congressmen repeat the same statement: We need to have a unified front from all segments of the cotton industry to get our objectives accomplished.
Eduardo Esteve, President
Texas Cotton Shippers Association
The production in Texas this current marketing year reached over six million bales. Considering we had 36% abandonment, the number was pretty impressive. Even with drought conditions, we managed to produce 700 per acre.
USDA has pegged Texas acres at 5.7 million this season. If we use the same yield and a 10% abandonment, we could produce 7.4 million bales. West Texas has already received around seven inches of rain this year and conditions are ideal. South Texas is also starting well: 75% of the crop has been planted and they have received 2-6 inches of rain.
Merchants are currently facing a difficult time merchandising cotton. The loss of Step 2, combined with the CCC loan premiums not being discounted to reflect that change, has led to U.S. cotton being the residual supplier to the world and a likely scenario where ending stocks could reach a record level close to 10 million bales. Even with the 20% estimated reduction in acres, the 2007 crop could still be over 19 million bales.
We have to find a mechanism to move cotton into the marketplace in a more efficient matter. All the sectors of the cotton industry need to work together to find a solution. We need to present a united front to our administration to insure we continue to grow cotton profitably. But also to ensure that we can merchandise it efficiently, thus diminishing stocks, and ultimately allowing for higher market levels.
Jordan Lea, President
Atlantic Cotton Association
This past marketing year is quickly becoming the year that never was. Domestic demand has held somewhat steady but anticipated demand for U.S. cotton is far below initially anticipated levels. The absence of Step 2 and the current marketing loan premium schedule have worked together to make U.S. cotton some of the most expensive in the world.
In addition to the challenges the amended Farm Bill presents, India has finally realized an expected increase in yields and become a major world exporter taking market share from U.S. cotton in every market we have supplied. U.S. exporters, CCI and Cotton Incorporated, among others, have worked very hard and invested significant resources in these markets for many years to capture market share. Now, even with surging demand for all cotton worldwide, the U.S. producer is losing this market share in a matter of months.
Ending stocks could easily swell to almost 10 million bales this year. It appears that cotton will be forfeited into the loan on a scale not seen in two decades and that two crops will be for sale this fall. This could make the cost of the cotton program, as a percentage of all agricultural outlays, enormous.
As we look to a new Farm Bill, it is time for all cotton industry segments to work together to help Washington produce legislation that promotes the interests of U.S. Cotton. The new Farm Bill has to provide a safety net and protection for the producer while putting cotton into the free market. The current legislation, without Step 2 and with its current loan premium schedule, discourages free enterprise, inhibits price discovery and prevents the movement of cotton into marketing channels.
Let’s face it. It’s going to be tough in many parts of this country to compete with $4.00 corn and $8.00 beans. We need an efficient mechanism in place that rewards the person taking the risk, (the producer), and increases his opportunity.
GET THE NEWSLETTER TODAY!
