U.S. cotton is like a heralded triple threat baseball player with a threat now missing.
Picking of the 2007-2008 crop has begun in New Mexico and Texas, and there is reason for optimism. Cotton may sell at the best prices seen in several seasons, according to the president of an 80-year-old California-based cotton marketing cooperative that has ventured east in search of new supplies to replace bales lost in California from growers switching to non-cotton crops.
Bob Norris, a Calcot employee for almost 40 years and its president for the past four, told growers at the cooperative’s annual meetings in El Paso, Texas and Corpus Christi, Texas, that demand for high quality U.S. cotton is good.
Attractive prices are the missing element that could make cotton the star of the game. Alternative crops are more attractive than cotton.
U.S. cotton prices have been in the cellar almost as long as the Cleveland Indians.
Although Norris said there has been a recent, helpful “up tick” in prices from a four-year run of flat prices, he hopes they will go higher, much higher. “Upland cotton prices in the 70-cent range would help a lot” to put cotton back into the crop mix for U.S. Sun Belt farmers.
New York December futures are now about 63 cents. March 2008 is only about a nickel higher.
Unfortunately, cotton prices have farther to climb toward profitability for producers than baseball’s Indians have to get out of the cellar.
Base grade cotton settlements for the growers’ 2006-2007 crop in both areas were about a dime below that 70-cent level.
Market fundamentals say cotton prices should be better this season. World production is estimated by USDA to be 117 million bales. Consumption is predicted to reach a record 128 million bales. U.S. exports are expected to return to about 16.7 million bales, “Which would be good news indeed, especially if U.S. production is under 18 million bales,” said Norris.
U.S. production should be down, due to weather and a huge swing in acreage in the Mid South and Southeast from cotton to corn and soybeans.
“Despite large crops in China and India, we’re expecting world stocks to be down by more than 5 million bales at the end of the season. Historically, that has led to higher prices,” Norris said. Now growers wait to see if history repeats itself.
Cotton has started to ride the all-commodity bullet train of big grower returns for corn, wheat, alfalfa and soybeans.
Norris understands the economic switch to corn, soybeans and other more profitable row crops, however, he points out these acres can be switched back to cotton if prices improve.
This flurry of punches from a variety of more economically stout alternative crops is not the only thing hammering cotton.
Water and weather for Calcot’s newest members has played a negative role.
“Perhaps the biggest unknown is water availability in the irrigated West. Timing of water is another issue,” he said.
The El Paso area had too much rain in 2006, while the Corpus area had a serious drought that cut Calcot’s anticipated South Texas bale handle in half.
This year the tables were turned. Corpus Christi had 22 inches of rain in July and rather than being finished with ginning by now, growers are still picking. El Paso also had a wet 2007 spring, but nothing like the Coastal Bend area of Texas.
“Considering the wet spring you had, it’s hard to complain about lack of water, but the winter forecasts are not optimistic at this time,” he said. “Increasingly, there’s greater competition for less supply and that will probably do nothing but get more extreme.”
Another haymaker in the making is the new farm bill. The House has passed an “about as good as it’s going to get” farm bill said Norris. Now cotton growers must wait for the Senate to act, and senators are “talking about something else altogether” different than the House passed.
Norris noted that the Senate is promising a farm bill by the end of the year, but what comes out of a House/Senate conference committee faces a presidential veto, if it does not “conform to administration ideas.” Regardless of what finally comes out of Congress, it will be different than the current farm bill, Norris said.
The recent resignation of Agriculture Secretary Mike Johanns only adds “another layer of complexity to this process.”
And finally, there is the World Trade Organization sucker punches. One already has landed and changed U.S. trade policy for cotton with other challenges likely to have a big effect on grower decisions.
Add it all up and Norris says, “This will be one of the most challenging years we’ve ever faced.” Nevertheless, Norris offered he is “relatively optimistic” about Calcot’s future regarding the cooperative’s ability to meet these challenges.
Calcot sold a little more than 830,000 bales last season for $319 million dollars, and chairman Charles A. Fanucchi of Kern County, Calif., expects the handle to be about the same number of bales from the 2007 crop.
As the SJV cotton acreage continues to decline, Calcot has gone elsewhere to collect more cotton to market.
Calcot was formed to market primarily California cotton, more specifically SJV Acala. Arizona cotton growers were enfolded into the cooperative in 1955.
Unlike California, cotton acreage east of California has been relatively stable in recent years. Arizona has remained at about 180,000 acres annually and this past season helped fill some of the gaps of declining SJV production.
“Like the rising sun, the bright spot in our future is in the east because that's where the acres are.” Norris said the response from South Texas has been positive and the number of bales marketed from there is expected to increase.
This past year Calcot secured El Paso-based Southwest Irrigated Growers (SWIG), broadening its grower base and cotton mix. “The transition has been fairly smooth and the response from growers and their gins has been very positive, and we plan to increase volume from these areas that continue to produce dependable volumes of quality cotton.”
Last year the 830,000 bales Calcot marketed were divided among the areas served by Calcot as follows: 40 percent California, which includes Southern California and Sacramento areas; 42 percent Arizona; 14 percent New Mexico and Far West Texas, and 5 percent South Texas.
“Our reaching out to the east does not mean we place any less emphasis on the interests of California's and Arizona’s cotton growers, but it is an acceptance of the reality of today's production situation.”
In El Paso, Norris announced that Calcot's seasonal pool for upland cottons — for base grade Desert Southwest, 31-3-35, the final settlement was 1.25 cents per pound, for a final price of 60.60 cents.
Premium cottons did better, such as the 21-2-37 grade. The final price for this grade was 62.10 following a final settlement payment of 2.25 cents. Also, strength of 31.5 grams per tex and higher were paid a 50 point premium. The final prices for the former SWIG cotton are similar to those paid for California and Arizona cotton, which received about 80 points more than the New Mexico/Far West Texas/Eastern Arizona cotton, with the difference being due to transportation.
For South Texas Calcot-marketed cotton, the base grade South Texas, 31-3-35 achieved a final price of 60.40 cents with the final settlement at 1.05 cents per pound.
Premium cotton, 21-2-37 achieved a final price of 62.90 and a final settlement payment of 3.05 cents. Also, strength of 31.5 grams per tex and higher were paid a 50 point premium.
The 2006-2007 marketing year began with high expectations, Norris told growers at both stops, of larger U.S. exports than what finally came to pass. Early predictions had the U.S. exporting about 16 million bales. Final exports were about 13 million bales.
China was the culprit, he said, as the Asian giant was expected to import over 18 million bales and instead brought only about 10 million bales through its ports. That left U.S. bales and other producers chasing after a smaller pool of buyers, and unfortunately, led to very cheap pricing.
Despite world cotton demand exceeding production, prices struggled during the Aug. 1 to July 31 marketing year. Previous world cotton stocks were more than sufficient to smooth the transition from one year to the next, and large crops in India, China and the U.S. all added to price pressure.
Cotton futures traded at about a third of their normal range in a more typical season.
Calcot advances for the 2007-2008 are again based on government loan levels, adjusted for qualities.
“While we've seen some futures price moves in a positive direction, prices are not that much above government loan, so it's prudent to keep our advance levels somewhat conservative and then make progress payments as soon as we possibly can. This is a practice we have followed for much of our 80-year history, and it is one of the chief reasons we are financially sound,” said Norris.
Calcot claims about 1,400 cotton producer members in California, Arizona, New Mexico, and Texas.