The National Cotton Council of America
June 14, 2011 The National Cotton Council of America’s mission is to ensure the ability of all U.S. cotton industry segments to compete effectively and profitably in the raw cotton, oilseed and U.S.-manufactured product markets at home and abroad. Those segments include producers, ginners, warehousers, merchants, marketing cooperatives, cottonseed handlers and manufacturers.
To find out more about this unique association and to learn more about its goals and priorities, Cotton International sat down with Gary Adams, NCC’s vice president of economics and policy analysis.
CI: USDA’s projections call for about a 14.5% increase in acreage in the United States this season. At this early stage, what do you think of that number and what it would mean to the U.S. cotton industry?
GA: The USDA projection came in close to the survey that we did ourselves earlier this year, so the fact that they are similar would seem to be a pretty good indicator of growers’ intentions. Many analysts were expecting a bigger increase than what these surveys showed—and I expected a slightly higher number as well, to be honest—but this is the best we have to plan for as we look toward 2011.
The market is sending very clear signals that it wants more acres for cotton, not just in the United States but also from growers around the world. But there’s still a lot of competition out there. As high as cotton prices are right now, corn and soybeans are up over last year as well, and in addition, it’s not just the final price that needs to be considered. The costs that go into production of the different crops need to be taken into account, as well.
Almost all of the acres given to cotton were harvested last year because the weather generally cooperated and abandonment was very low. The 2.5% abandonment last year has been as high as 15% to 20% in previous years. Unfortunately, one of the most uncertain places in the United States, weather-wise, is Texas, which produces about half of the entire U.S. crop. A single large hail storm can wreak havoc on a cotton crop.
Generally, we think the estimates show that it’s a good time for U.S. growers to be in cotton. But it also shows that even with cotton at near-record-high prices, other commodities are enjoying very strong pricing, so growers have alternatives available.
CI:If the crop comes in as expected at about 19 million bales, will that be enough to cool off prices?
GA: The U.S. textile industry should consume about 20% of the crop, somewhere around 3.7 or 3.8 million bales, leaving 15.2 or 15.3 million bales for the export market. But we think demand could easily consume 15.5 million bales, so even if the crop turns out as expected, we don’t see a much different stocks-to-use picture than we saw at the end of the 2010 marketing year.
We don’t know how long $2 cotton will be around, but even when you look at the futures markets for the 2011 and 2012 contracts, it still shows a lot of price support, and stocks-to-use will remain tight. For the foreseeable future, events look to be very supportive of price relative to where we’ve been for most of the last decade.
CI: As U.S. growers were thinking about their planting intentions this year, what kind of factors were they considering about which crops to grow? If they already have a lot of experience growing cotton, for example, does that make them less likely to switch to something else?
GA: If you look across the Cotton Belt, cotton growers also have a lot of experience with corn, soybeans, peanuts and rice. They already have a varied crop mix and are comfortable growing multiple crops. Cotton had been losing acreage for a while prior to 2009, when we started getting some of them back because prices were improving. So if you look at where the cotton gains are coming from, you’ll see that in the Mid-South, USDA projections show that growers intend to plant a few less soybeans and a little more cotton. In the Southeast, it looks like they’ve decided to plant fewer peanuts and a little more cotton, as well.
So while we’re expecting about a 14% or 15% improvement in acres for cotton, it’s not that there’s a mass exodus from any one crop into cotton. There aren’t any massive shifts coming, but rather incremental adjustments based on returns.
CI:What are some of the bigger challenges that U.S. growers face?
GA: We started talking earlier about weather, which has caused so much disruption in cotton globally over the last year. It’s early in the year, but we’re off to a very dry start, especially in Texas. I regularly look at the U.S. Drought Monitor (www.drought.unl.edu), which shows the severity of drought conditions across the United States, and it shows essentially all of Texas as having “severe drought” right now. So we’re starting off behind the eight ball, so to speak. On the other hand, if you look back on historical precipitation totals this early in the year, there’s not an exact correlation to poor yields, so we don’t want to overstate the relationship.
Another area where the Council will be devoting attention is the continued improvement in cotton logistics and flow. Timely and efficient flow of cotton from the gin to the textile mill—whether the mill is here in the United States or in Asia—has never been more important. Currently, 75% to 80% of our cotton moves into very competitive export channels.
A final point that should be made concerns the need to continue to build demand for cotton. That may sound a bit odd at times when prices have reached all-time highs, but it is important that consumers continue to demand cotton products, especially when cotton prices are above those of competing fibers.
CI: Because we can’t change the weather itself, what options do those growers have?
GA: One of the things that has started to help over the last few years is that growers are starting to make more investment into various types of irrigation. Even in West Texas, they are starting installing drip irrigation, so they’re doing what they can to control the growing conditions. There are also things in the research pipeline involving genetics that can help with drought resistance, so there are multiple efforts being made to reduce weather’s impact.
CI: What are the early expectations for the 2012 Farm Bill?
GA: The Farm Bill is certainly on the mind of the National Cotton Council. We understand the challenges we face in the next Farm Bill, many of which start with the overall budget climate in Washington. We are already seeing proposals that reduce the amount of funding that goes in agricultural programs. We recognize that funding is going to be extremely tight, and that’s just the budget situation—not to mention the ongoing World Trade Organization case with Brazil. There are too many unknowns and moving parts in that process for us to say something with any kind of certainty, but the National Cotton Council will continue to work to make sure there is a safety net out there for American growers.
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