Staplcotn exec: competitive numbers point to more cotton in 2019

Staplcotn exec: competitive numbers point to more cotton in 2019

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“When we’re in a situation where the world is enjoying the most cotton demand it has ever had, we think there will be a need for more acres."

Hembree Brandon 1

Strong worldwide demand for cotton and a more competitive price outlook for cotton versus soybeans or corn may point to a resurgence of cotton acres in 2019, says Hank Reichle, executive vice president of the Staplcotn cooperative at Greenwood, Miss.

“When we’re in a situation where the world is enjoying the most cotton demand it has ever had, we think there will be a need for more acres, and we think the market will bring those acres back in the Memphis Eastern territory in 2019 to about where they were a decade ago,” he said at the annual joint meeting of the Mississippi Boll Weevil Management Corporation and the Mississippi Farm Bureau Federation Cotton Policy Committee.

“Cotton is doing much better relative to soybeans than it has over the past few years, and the same thing with cotton versus corn: cotton versus corn. If this continues, I think we’ll see more cotton acres come back in Mississippi. If we look at Mississippi acreage planted this year, the USDA is suggesting that it was 560,000 acres, a decrease from 2017. We think acres are more or less the same as they were in 2017. But if we look at the ratios, cotton has been more competitive with soybeans and corn than in the past four or five years. If those ratios continue, we would expect to see more and more acres come back into cotton.”

FARM PRESS PHOTO

Larry Coker 2018
Larry Coker, from left, Blue Springs, Miss., producer; Mike McCormick, Mississippi Farm Bureau Federation president, Jackson, Miss.; Bernie Jordan, Yazoo City, Miss., producer; and Chris McClain, Staplcotn, Greenwood, Miss., were among those attending the annual joint meeting of the Mississippi Boll Weevil Management Corporation and the Mississippi Farm Bureau Federation Cotton Policy Committee.

In the Memphis Eastern territory, Reichle says, “We’re looking at a current estimate of about 9.3 million bales from the 2018 crop. The USDA doesn’t tell us how they arrived at their July estimate of 18.5 million bales nationally, but our economist, Lewis Holbrook, took some clues from their numbers, and arrived at about a 4 percent increase for the Memphis Eastern territory. We think acreage and yields could be a little bit better in this region, at about 9.5 million bales.

The big change in expected production is happening in the Southwest, he says. “Last year, Kansas, Oklahoma, and Texas produced 10.5 million bales. The estimate today is for 7.7 million, a 27 percent drop, and a 12 percent decline nationally. Last year, they had plenty of rainfall, relatively low abandonment, and very high yields; this year, it’s a completely opposite situation. On a lot of dryland farms from the panhandle southwestward, they’ve only had 2 inches to 3 inches of rain since January. At a meeting yesterday, a producer said he has 10,000 acres of cotton, of which 2,000 acres are irrigated. The irrigated crop is fantastic, he says; on the dryland he’ll harvest zero.”

RESPONDING TO PRICE
Looking at how cotton plantings have responded to relative prices this year, Reichle says acreage in the Far West is “more or less flat to 2017. In the Mid-South, we saw a big jump in acres in 2016 over 2015, and in 2017 over 2016, with this year being more or less flat.

“I think that’s related to price, but also yield prospects are better, and grain prices aren’t that strong and aren’t providing as much competition for cotton as they did five or six years ago. In the Southwest, acreage is on the rise, but the Texas crop depends on weather as to how much of those plantings get harvested, and this year we think abandonment will be very high.”

Another “very supportive factor” in the market is China, he says. “All the analysts talk about China’s huge cotton reserves. For several years now, China has had a deficit in their production versus consumption. But their government limited imports, and told the mills ‘OK, you’re going to have to buy cotton from our national reserve.’ Now, they have a 16 million bale deficit between what they’re consuming and what they’re growing, and the government basically thinks that their stocks are line, that they don’t need to auction off a lot more cotton.

“That means China is expected to become a much larger importer of cotton. The U.S. can’t sell a lot more cotton because our stocks are pretty low already, so as China moves to import more of its deficit rather than buying from its reserves, that should be very supportive of prices. Unfortunately for U.S. cotton, no Chinese mills are going to be buying it because it’s 25 percent more expensive than it’s supposed to be because of the U.S.-imposed tariff.”

The disruption caused by the tariff may mean China will have to import more Brazilian cotton, Reichle says, and the U.S. will then have to sell more cotton to wherever the Brazilian cotton would have gone. “This is not good for demand. While it may all work out in the end, it’s not what we want — but we don’t have much control over the broader trade situation.”

TARIFFS SLOWING BUYING
Exports continue to be the key for U.S. cotton, he says. “We need to export 16 million bales a year if we’re going to have a run at moving up to a 20 million bale crop. As of right now, we’ve already sold 6 million bales of the 15 million bales the USDA expects we’ll sell next year. We’re already well ahead of where we were this time last year, and that’s very positive. One thing that’s a concern: Of the 6 million bales we’re already committed to export next year, 1.6 million are for China, and if this trade issue doesn’t get resolved, most of that 1.6 million bales won’t go to China. The market still has to deal with this disruption.”

In conversations with textile mill officials in Bangladesh the previous week, Reichle says, “I was told they’re slowing their buying and the making of commitments because they want to see how the tariffs situation plays out. China is a massive player in the cotton business, but they’re also a massive exporter of textiles. Does the trade war sorta stop here, or does it start to cover more products?

“Right now, in the $200 billion of additional tariffs — if they are imposed — on finished goods products like shirts, for example, aren’t taxed. But if this trade war keeps going and we keep slapping tariffs on more and more products, eventually they’ll get to textiles with tariffs, and that will be very damaging.”

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