Fundamentals are in place for higher cotton prices for the 2006-07 crop. The only thing that prevents Calcot President Bob Norris from predicting better prices is the 2005-06 carbon copy just ended. He predicted improved prices under the same scenario last year and he was wrong.
He does not want to be wrong twice in a row.
There were records all around during the past 12 months; record U.S. exports of 17.6 million bales; record Chinese consumption of 46.5 million bales — importing 19 million of those bales, and record world consumption of 117 million bales with production 3 million bales short of total consumption.
With 5.9 million bales of domestic consumption, the entire U.S. crop of 23.9 million bales was essentially wiped out, Norris told Calcot growers at the cooperative's first South Texas annual meeting in Corpus Christi, Texas.
Unfortunately, the market did not respond as expected to those fundamentals.
With cotton “clearly” in “great demand” prices floundered, trading in a very narrow 7-cent range with market volatility of a month-old soft drink … no fizz.
The constricted trading range, unfortunately, Norris said, was “right at the level that keeps loan deficiency levels down, too. Prices never really rose to the point growers would like to see nor did they every really fall to collect more benefit from the LDP.”
Step 2 was not much help either.
A huge chunk of last year's U.S. crop was out of Texas, a record 8.5 million bales, mostly from West Texas. The extremely large, high quality West Texas cotton was priced about 10 cents per pound lower than comparable growths and stymied the market. “Mills were ready buyers at those lower price levels, making it difficult to complete sales with higher price ideas,” Norris said.
Calcot handled just under 800,000 bales on sales of $320 million last season. Sales were off $100 million from the prior year due to lower prices and lower volume, primarily of California cotton.
Calcot's handle is expected to jump back to 1 million bales this season as the Bakersfield, Calif.-based cooperative spreads its wings and markets about 125,000 bales for former SWIG members in New Mexico and the El Paso/Pecos areas of Far West Texas and an anticipated 30,000 bales from South Texas producers who invited Calcot into that part of the world to market cotton last season.
Calcot marketed 14,000 bales of South Texas cotton last year. Contracted acreage doubled this season, but weather conditions in that part of the Cotton Belt were not idea for maximum cotton production.
In a normal weather year Calcot could sell from 70,000 bales to 90,000 bales for its South Texas members.
Norris termed Calcot's first year of marketing South Texas picker cotton as a “definite learning experience,” especially the unpredictability of Texas weather. All South Texas cotton handled by Calcot went directly into export, specifically to China, Hong Kong and Indonesia.
“These are typical, traditional customers of ours and there was considerable interest in being able to purchase South Texas cotton direct from Calcot. I believe that is a good sign of things to come,” said Norris.
The raw economic numbers ahead for Calcot's anticipated 1 million bales in 2006-07 handle point to higher prices, “but I hasten to add we thought that a year ago, too.”
World record production is estimated by USDA to be 115 million bales. Consumption is predicted to set another record at 122 million bales. U.S. exports will fall to 16.2 million bales, about 3.5 million bales less than last year.
“The best news is world ending stocks are expected to drop about 7 million bales from this time a year ago. Historically, that is a scenario for higher prices,” said Norris.
However, the president says it has not happened yet. “Ending stocks are still somewhat burdensome, and I think we'll need to be farther along in harvest before we have a more solid idea of what world supplies are and where they are,” he added.
With an infrastructure geared to handle at least 1 million bales of cotton, Calcot started looking eastward for more cotton as Western cotton acreage tumbled, especially in the San Joaquin Valley where growers switched to higher value crops due to increasing production costs.
The cooperative found it when SWIG and South Texas growers contacted the Bakersfield, Calif., cooperative about marketing cotton from those areas.
“We are very pleased to be in South Texas,” said Norris at the annual meeting stop in Corpus Christi, Texas. “In years to come I believe you will be an important part of our marketing mix.”
The invitation for Calcot to come into South Texas was very welcome, said Norris. And apparently growers are happy as well as Calcot acreage has doubled since last year.
“In many ways, this is an exciting time. Our experience has been that marketing cotton from other areas expands our reach by increasing cotton varieties and qualities in our inventory. It gives us access into world textile markets that we have not been involved with,” he said.
Grower Walter Priestly of Corpus Christi, Texas, is now on Calcot's Board, and Norris said the cooperative will be adding a director-at-large from the same area. As another indication Calcot plans to stay in South Texas, it has hired a full-time South Texas field representative, Jeremy Speis of Woodsboro, Texas.
The new farm bill will have a major impact on cotton's and Calcot's future in South Texas, and Norris pledged that Calcot will be front and center of the farm bill debate.
Norris pointed out that Calcot Director John Pucheu of Tranquility, Calif., is up for the chairmanship of the National Cotton Council next year and two other Calcot directors are past NCC chairmen “so we have experience and expertise in the political battles that are looming.”
Calcot chairman and Kern County, Calif. cotton producer Charles “Charlie” Fanucchi hopes the new farm bill will be an extension of the current farm bill or “something similar. Right now it is what keeps us in the cotton business. It is a safety net we need to keep growing cotton,” he said.
Calcot's final settlement payment to growers totaled $13.7 million. The South Texas seasonal pool's final price was 63.07 cents per pound.
Final seasonal pool for SJV Acala was 74.62 cents per pound, the lowest price since the 2002-03 season. SJV Pima seasonal pool final price was $1.20 per pound. This was the lowest price in the past three seasons, but the fourth highest price settlement price since 1994-95 season.
The final settlement for California/Arizona Upland was 66.37 cents per pound. Desert Pima season pool final price was 118.63 cents per pound. SJV California Uplands' final price was almost 69 cents. Sacramento Valley upland brought the same price.
Advance payments for Calcot members are again at government loan levels.