U.S. cotton prices in 2009-2010 are expected to flounder between 57 and 65 cents per pound as the U.S. tries to market a crop of about 13 million bales, according to Jarral Neeper, president of Calcot, the grower-owned cotton marketing cooperative based in Bakersfield, Calif.
“The market is trickier and I don’t expect much movement anytime soon,” Neeper said, following Calcot’s 82nd annual meeting in Tempe, Ariz., in late September.
“I expect U.S. cotton will make another run to a lower level trading range to sell more U.S. cotton,” Neeper said. “Over the next 60 days prices could mount another run at 65 cents unless we break critical support at 57 cents.”
“After reaching a high of 73 to 77 cents this next spring for the 2010-2011 crop, the December 2010 futures contract could fall to the mid-to-low 50-cent range by next fall, depending on weather and the economy,” Neeper said.
He expects U.S. growers will plant more cotton next season than in 2009, producing up to 14 million bales and possibly “threaten” the 15-million bale mark. This year’s plantings were just over 9 million acres.
Calcot markets cotton grown in California, Arizona, New Mexico, and Far West, Central, and South Texas.
Neeper and Board Chairman Charles Fanucchi, Bakersfield, Calif., reported on Calcot’s financial health during the association’s business meeting. The association has worked through a plethora of tough decisions amid the floundering U.S. cotton industry and the harsh realities of economic recession.
“Calcot is still here and financially we're pretty healthy,” said Neeper, a 15-year company veteran. “We’ve restructured the business, eliminated our classing department, and terminated a number of positions. We’re operating in a very cost-efficient manner and will continue to do so.”
Calcot closed one satellite warehouse facility and may close another.
Calcot marketed about 558,000 bales from the 2008-2009 crop with a full-time staff of 56 and almost no seasonal employees. The cooperative sold 2 million bales 25 years ago with 157 full-time and 850 seasonal employees.
“We’ve always stressed being efficient and cost effective,” Neeper said. “The financial crisis of the last two years accelerated our efforts to trim our work force.”
Calcot started in California in 1927 marketing only California-grown cotton. The company launched Arizona marketing services in 1955. Calcot initiated South Texas cotton marketing in 2005. A year later Calcot acquired the Southwestern Irrigated Cotton Growers which expanded the company’s reach into New Mexico and Far West Texas. Calcot this year expanded its marketing into Central Texas.
Calcot started in California, but cotton production has drastically fallen in the Golden State which prompted the expansion into New Mexico and Texas. There are less than 200,000 acres of cotton in California this year, the lowest acreage since cotton became a commercial crop in the 1920s.
“California’s acreage reduction is due to higher prices for competing crops and the loss of markets for longer staple varieties,” Neeper told the Calcot members. “The final nail in the coffin last year was the drought in California. I think we would have had more acreage with more water.”
Early indications are that there could be up to 300,000 acres of cotton in California next year, according to Earl Williams, president of California Cotton Ginners and Growers Associations.
Today most Calcot-marketed cotton is grown in Arizona.
The fact that Calcot remains in business and financially viable is a healthy sign. Several U.S. cotton marketers closed the doors this year and two of the nation’s largest cotton merchandizing firms are in merger talks.
“It’s said we are in a new era,” Neeper noted. “Outside factors far beyond cotton supply and demand have had a huge impact on our markets. Raw production and consumption numbers would lead one to conclude that prices should have been higher. Frankly no one was paying attention to that time-honored yardstick. The various outside influences hammered prices. It’s amazing that prices didn’t absolutely collapse.”
Neeper announced Calcot’s final settlement of $11.2 million. Specifics include:
• California San Joaquin Valley (SJV) Acala cotton: Base grade of 31-3-36 in the seasonal pool will be paid 12.8 cents per pound for a 70.7 cent/pound final price on a gin UD free basis.
• SJV roller-ginned Acala: will be paid 1,280 points (12.8 cents) for 73.70 cents total on a gin UD free basis, base grade 31-3-38.
• California, Arizona, and Desert Southwest varieties: to be paid 600 points for 61.70 cents final price on the 31-3-35 base grade. A premium will be paid for the 21-2-36 grade and better.
• California Upland seasonal pool: base grade 31-3-35 will receive 9.8 cents for 67.10 cents final price/pound, gin UD free.
• South Texas growers: advanced a 4-cent progress payment in May. The final payment will be two more cents for a 61.70 cent final price for 31-3-35. All base-grade Upland cottons Calcot handled outside of the SJV varieties will receive 6 cents/pound over the initial advance in the seasonal pool.
• Seasonal pool SJV Pima: 1,325 point payment, base grade 2-2-46, total price of 97.10 cents gin UD free.
• Desert Pima: 10.75 cent payment for a 93-cent total price, 2-2-46 base grade.
• Spot fixation pool option: 100 additional points.
• Call pool: 25-point payment for 575 points off the futures fixation.
Calcot expects to mail member checks in late October to early November, slightly delayed due to the slow marketing season and collections.
Fanucchi said the company closed a cotton warehouse facility in Artesia, N.M., this year and could shutter its warehouse complex in Hanford, Calif.
Fanucchi says Calcot is dealing with a class action lawsuit filed about three years ago by two former Calcot members regarding the company’s warehouse location in Pinedale, Calif. The Calcot board voted to sell it and later improved the property to facilitate sales. Calcot has posted a $10 million profit to date on the sale.
Fanucchi and Neeper promised members that service will never suffer even with Calcot’s scale back.
“I intend for Calcot to operate with our core values of honesty and integrity and to never forget that we work for and with cotton farmers who want a fair price for their hard efforts,” Neeper promised.
The Calcot board elected Neeper president following the retirement of Robert Norris, a 40-year company veteran who served as the co-op’s president for nearly seven years.