Perhaps the stars and the planets are finally aligned in the proper positions to allow Southwest cotton farmers to pick up a premium for high quality.

“The world is not accustomed to the current demand for high quality cotton,” says Ed Jernigan, chairman and CEO of Globecot, a cotton marketing service, based in Nashville, Tenn.

Jernigan outlined the current cotton market situation and also took a look ahead and offered a historical perspective on cotton quality demand during a crop consultant seminar, sponsored recently by Bayer CropScience at South Padre, Island, Texas.

Jernigan said South Texas farmers “have done the best job of anyone in the United States to change to what the cotton market wants.”

He said for years the industry looked for ways to keep Texas cotton off contract. “Today, Texas growers have changed to what the market demands.”

Jernigan said the current emphasis on high quality resulted from a combination of factors in China’s textile industry.

“China is the world’s largest consumer of cotton and the largest U.S. cotton customer. But historically, China imported lower grade cotton and relied on domestic production for the high quality cotton they needed.”

He said the Chinese textile manufacturing sector has undergone changes similar to those in other countries. High speed spinning demands stronger and longer staple cotton to run efficiently. In 2003, much of China’s crop was destroyed by heavy rain and flooding. “They did not produce enough high grades and had to come to the marketplace for high quality cotton and the United Sates had it. They bought a lot of South Texas cotton.”

Jernigan said China has exhausted its cotton stocks. “Those reserves no longer play a role in the market. Their domestic crop produced only 22.4 million bales instead of the anticipated 29 million. By Feb. 1, 2004, China had bought 5 million bales of cotton. I think they will buy 10 million bales.”

He said China will likely be in the market for some time, “but will not import shorter staple. They don’t want one and one-sixteenth-inch cotton, although there are no absolutes with Chinese marketing. Most likely, they’ll want one and-one eighth inch or better.”

Jernigan said textile demand in China grew by more than 10 percent in 2003.That demand is likely to increase, a result of the Cultural Revolution and increased consumer demand.

China likely will increase cotton acreage. On-farm price for cotton is just slightly less than 80 cents a pound, so it’s a promising option. “China increased acreage by 15 percent or 16 percent last year,” Jernigan said. “But China also has a program to stimulate grain production and that may cut into cotton acreage expansion.”

He said cotton production for 2004 could range from 27 million bales to 32 million bales, if conditions are perfect. “I don’t use that 32 million bale figure in estimates but it remains a possibility. A 27 million to 28 million bale crop seems more realistic and at that level, China still needs to import cotton.”

Jernigan said Bangladesh, India, Indonesia, Pakistan and Turkey also will come into the cotton market. Turkey most likely will look for lower grades, but the others need higher quality cotton. Jernigan said Bangladesh could import about 1.7 million bales; India could buy 1 million, Indonesia looks for as many as 2.2 million bales for import; Pakistan takes about 1.75 million and Turkey imports 1.8 million.

With that much demand for higher grades, “we’re seeing a shrinking supply of high quality cotton,” Jernigan said. “And futures prices for Strict Low Middling, one and one-sixteenth cotton do not always reflect what’s going on in the market.”

He said South Texas growers’ decision to add FiberMax varieties into planting schemes several years ago may now pay dividends. He said the top tier of the world’s best quality cotton includes West Africa and Central Asia, which is considered high quality but with contamination problems; San Joaquin Valley Cotton, which has a good reputation; Australian cotton that mills want; California/ Arizona and Zimbabwe cottons, also with good reputations for high quality; and now U.S. FiberMax, with a good name for quality cotton.

“For the 2004/2005 marketing year, the quality of U.S. cotton plays a crucial role in export viability,” he said. “Demand for quality will be high.”

He said a mid-60-cent futures price in mid-February seems a good floor. “I don’t see much downside risk and we could see rallies above 70 cents, contingent on world acreage. A 100-million bale to 102-million bale production projection would set a record.”

A price rally back in October may have spurred interest in expanding cotton acreage, Jernigan said. “Recent dips could limit increases. And any hiccups in production, monsoons, droughts and so forth, could stimulate price rallies.”

Jernigan said competition from synthetic fibers continues to hurt cotton. China also tops the list as the world’s largest manmade fiber consumer. “Before cotton prices jumped last fall, cotton claimed 51 percent of the fabric share in China. After the jump, the share dropped to a bit more than 49 percent, so the price differential meant only about a 1.5 percent blip.”

Jernigan said a quality and price relationship shows up in cotton marketing as far back as 1825, when Sea Island cotton in South Carolina brought $1.10 per pound. Regular upland cotton sold for about 9 cents a pound at the time. Sea Island cotton featured long staple. Growers also maintained a strict quality control on seed. And the cotton was bagged instead of baled.

Jernigan compared cotton grade charts from 1946 and recent production for Arkansas, Mississippi and Texas. In a 1946 classing guide, Mississippi averaged 34.2, Arkansas 32.2 and Texas 30.5.

Recent guides show a little change in Arkansas, at 34.8 and Mississippi at 34.5, but Texas has improved to 34.3.

He also says the U.S. base quality for cotton, SLM one and one-sixteenth, is too low, but was put in place with the 1977 Food and Agriculture Act.

Finally, Jernigan said the change in the domestic cotton industry would mean a strong reliance on exports. In 1977, U.S. production hit 14.4 million bales; domestic use was 6.4 million bales and exports were 5.4.

“In 2003/2004, the United States cotton industry exports more than doubled domestic use.”

And as the export market becomes the most important sales outlet, farmers must adjust production to what that market demands, Jernigan said.

e-mail: rsmith@primediabusiness.com