Shelley E. Huguley, Editor
Agriculture is grappling with uncertainty as political turmoil, extreme weather patterns, and global conflicts converge with a pending new farm bill and rising production costs, all set against the backdrop of depressed commodity prices.
“The political situation is choppy, noisy and highly uncertain,” economist Darren Hudson said to a room packed with producers, commodity leaders and industry at a Farm Bill Summit hosted recently by the Southwest Council of Agribusiness in Lubbock.
Hudson, professor, Larry Combest Chair, and International Center for Agricultural Competitiveness director at Texas Tech University, focused on cotton -- the good, the bad and the ugly.
The good? “There’s actually cotton out there for the first time in a couple of years. We actually have bolls opening in West Texas,” Hudson said. “That's good because, on the one hand, the rest of the industry that depends on the flow of those goods passing through the system is going to have a chance to make some money.”
The flip side is that cotton is worth 35% less than when each producer in that room planted it last spring. And cost of production remains high—40% higher. It’s moderating but at least it’s not continuing to escalate, Hudson added.
Cotton demand
Cotton demand is weakening. “If we look at the global markets, demand is soft. Yes, we've got cotton. Yes, we can sell cotton. Yes, we can export cotton, but it's not worth as much and we don't have as many homes for that cotton.”
Competition is also a concern. “Brazil is kicking our butt,” Hudson stated. “I can deliver a bale of base grade cotton from Mato Grosso to Saigon cheaper than we can from the United States. We’ve got to figure out how to address it.”
Cost of production is partially to blame. “Part of it is Brazil is double cropping into 73 inches of annual rainfall and they get 3.5 bales on dryland cotton,” Hudson added.
Brazil is also overcoming infrastructure issues. “That's been what's been saving us to this point. It was really expensive to move that cotton out of the interior of Brazil to ports and get it to China or wherever.” But that’s changing.
Long-term outlook
Hudson also addressed long-term concerns for the cotton industry.
He referred to a chart that shows U.S. cotton competitiveness measures in different markets, such as Bangladesh, India, Thailand and Vietnam. “You can see in Bangladesh, we've been maintaining pretty good export competitiveness, but Brazil is gaining ground. Brazil is outcompeting us in Thailand and Vietnam.”
The U.S. exports 85% of its crop. “We’re very dependent on what happens with these export markets.”
Hudson referred back to Brazil, noting the country’s growth in acreage, yields and production. “Overtime, if they continue to improve their infrastructure and capacity, they're going to be more competitive with U.S. cotton in these global markets.”
Trade policies are another pain point. “What we need to be looking at is how do we negotiate better trade agreements to equalize the playing field with our customers?”
Foreign market development is also needed. “How do we create commercial linkages between U.S. firms, exporters and buyers? And how do we negotiate trade deals and then enforce them to make sure the global trading system is working as fairly as it can?
“If we can operate on an equal playing field in terms of where we deliver cotton and policies, we're very competitive,” Hudson said.
Apparel and textiles
COVID has and continues to take a toll on cotton demand. Hudson displayed a U.S. apparel price index graph. “What we buy in the U.S., in terms of apparel, draws cotton into foreign mills and then back into the U.S. in terms of processed goods.”
U.S. consumption is down. “A lot of this is inflation and a lot of it is because apparel, textiles are semi-durable goods. I can put off buying that pair of jeans another six months or a year, but I can't put off beef.”
Inflationary pressure on the apparel and textile market isn’t unique to the U.S. Hudson called it a global phenomenon. “It is growing a little but a lot of that growth is because prices are high. It’s not more units. It’s high prices, so the expenditure is growing, but it’s flattening out, which means the total units sold have gone way down. We have a bit of an inflation hangover.”
Slowed global population and real income growth are not good for cotton either, Hudson said. “Cotton is a higher expenditure of goods. We need growing income people to buy it and more people to buy it.”
Population growth is expected to dramatically slow in the next 10 to 15 years, “which means we have to face a market with fewer buyers. The only way we’ll see textile growth is if total use per person goes up. So, we have to have more demand per person to get higher levels of use, and the way you get there is income growth in the U.S. and globally.”
Polyester is also hurting demand. “We have to expand total demand for cotton,” Hudson said. “The population is not growing, so how do you get there? When you go from 30% market share to a 40% market share in five years, you’ve got to displace polyester.
“I think cotton is well-positioned. It’s a great product, a natural fiber. It's got a lot of great characteristics. Lots of people like cotton but it's expensive. Go online and look for a 100% cotton shirt. Look for a comparable shirt that is either a cotton-poly blend or polyester. The polyester is going to be cheap, so this is a pricing point issue.”
Logistics
An aging logistics system is also of concern. “Aging ports can’t transfer as much as they used to, or they’re overwhelmed by product volume going in and out.”
Rail systems need to be updated as well. “We haven’t invested in logistics in a long time,” Hudson added. “So, outside of a farm bill, agriculture needs to be looking at that logistic system and how we get products to port and on ships.”