Cotton demand has taken a big hit. What's behind this loss?
Any chance that Mid-South producers will plant more cotton? Weather and commodity prices will rule that decision.
I just attended my 24th Mid-South Farm and Gin Show, and there is no doubt that few other shows in the Mid-South can put so many farmers in one place at the same time and provide so much information and educational opportunities. Hats off to Tim Price and the Southern Cotton Ginners Association for another job well done.
Two things were on the minds of most farmers during this yearΆs show, China and the corn/cotton conundrum.
As anyone who produces cotton knows, ChinaΆs cotton policy can be incredibly disruptive to the cotton market. Today, they are holding millions of bales of cotton purchased internally and through imports. The domestic bales have been purchased at a very high price, which has put any textile mill in China that wants to spin that cotton at a competitive disadvantage.
To address this, Chinese textile mills are spinning more synthetic fiber, and have now reduced cottonΆs share of blends inside China from 57 percent to 40 percent. The U.S. cotton industry through Cotton Incorporated has worked diligently for many years to build demand through higher cotton blends. Essentially, weΆve now lost a lot of the fruits of that effort. ItΆs becoming more and more difficult to find a piece of clothing these days that is 100 percent cotton.
What is even more concerning is that many consumers, including those in the United States, havenΆt expressed any annoyance with this shift in fabric composition. It makes for some tough challenges ahead for the cotton industry.
One question asked during the gin show was whether China has an ulterior motive to ruin the U.S. cotton industry through its curious policies. The experts donΆt think so. Its only desire is to protect its domestic cotton producers by making sure they receive a good price for their product.
On the other hand, China does seem woefully inept at driving its economic engine, careening through each cotton marketing year like a first time automobile driver whose only frame of reference is watching Demolition Derby.
Another comment during the gin show from Joe Nicosia, executive vice president, Louis Dreyfus Commodities, sent a rumble through the audience at the gin show.
NicosiaΆs economic analysis showed a return over variable expenses of $406 per acre for cotton, $388 for corn and $394 for soybeans in Arkansas irrigated fields. The returns included cottonseed revenue.
This combined with a bearish analysis of the corn market from grains analyst Richard Brock, does give some hope that cotton acreage wonΆt fall as much as expected. WeΆll see.
On the other hand, China could wreck the cotton market if it decides to sell large chunks of its reserve. Whether youΆre planting cotton or corn, price risk management will be critical to your profitability this season.
