Taking a Bath on Cotton?
March 23, 2009 I am a bathtub person.
I grew up in a house that my granddad built just after the turn of the 20th century and we didn’t have showers – only bathtubs. Big ones with the claw feet. Sunk up to my neck, I could turn the hot water on and off with my toes with more dexterity than I could with my fingers.
My first job was as a sportswriter for the old Jackson Daily News, an afternoon paper that turned into the same thing as most afternoon papers – dinosaurs. Anyway, I cut my teeth well before that by reading the Sports Illustrated from cover to cover … in the bathtub. Even today, I get up, make the coffee, pick up the morning paper, then head off to the bathtub.
The Commercial Appeal here in Memphis has a good business section and what I look at every morning — in the bathtub — are commodity prices that include the percentage up or down they are for the year. I’m sure it would not surprise you to find cotton is down 35.3% for the year, soybeans down 30.8%, corn down 28.3% and wheat down 44.3%.
As an illustration of how volatile markets have been this year, let’s look at wheat, which topped out on the CBOT for the July ’08 contract at nearly $8.50 per bushel. These are cash numbers I found as I write this while snooping around: For delivery in the spring of ’09, if you take the CBOT price and deduct the local basis, cash wheat is $2.85. Cash corn for fall of ’09 delivery is $3.83. And the fall cash price for ’09 soybeans is $7.52.
Understand that I am not saying you will make more on cotton than you will on grains, I just want to point out how fast things can change.
Today’s depressed cotton prices are based on mill demand, which is based on textile demand, which is based on consumer spending, which is based on consumer confidence in the economy. Except for the price of gas, consumers aren’t very confident.
What I want to emphasize about cotton is that the loan gives us a floor of 52 cents. I also want to point out that cotton fiber is not the only consideration for what the grower actually receives. Cotton is not just lint — it’s cottonseed meal and cottonseed oil, as well. In the past two years, cottonseed, depending on location, went from $180 per ton to over $400. With the acreage we will plant this year, we won’t crush enough cottonseed to meet dairy-feed demand. Trans-fat-free cottonseed oil has been as high as 20-cents per pound over soybean oil.
Tim Price of the Southern Cotton Ginners Association says a “multiplier” formula is being put together that will include everything — the value of the lint, cottonseed meal, cottonseed oil, and even gin trash — to determine the true price of a pound of cotton. The formula will be addressed at the Beltwide Cotton Conferences, January 5-8 in San Antonio. We might not be taking as big of a bath with cotton as we think.
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