Cotton market may be emerging from doldrums

U.S. cotton is like a heralded triple threat baseball player with a threat now missing.

Picking of the 2007-2008 crop has begun in New Mexico and Texas, and there is reason for optimism. Cotton may sell at the best prices seen in several seasons, according to the president of an 80-year-old California-based cotton marketing cooperative that has ventured east in search of new supplies to replace bales lost in California from growers switching to non-cotton crops.

Bob Norris, a Calcot employee for almost 40 years and its president for the past four, told growers at the cooperative’s annual meetings in El Paso, Texas and Corpus Christi, Texas, that demand for high quality U.S. cotton is good.

Attractive prices are the missing element that could make cotton the star of the game. Alternative crops are more attractive than cotton.

U.S. cotton prices have been in the cellar almost as long as the Cleveland Indians.

Although Norris said there has been a recent, helpful “up tick” in prices from a four-year run of flat prices, he hopes they will go higher, much higher. “Upland cotton prices in the 70-cent range would help a lot” to put cotton back into the crop mix for U.S. Sunbelt farmers.

New York December futures are now about 63 cents. March 2008 is only about a nickel higher.

Unfortunately, cotton prices have farther to climb toward profitability for producers than baseball’s Indians have to get out of the cellar.

Base grade cotton settlements for the growers’ 2006-2007 crop in both areas were about a dime below that 70-cent level.

Market fundamentals say cotton prices should be better this season. World production is estimated by USDA to be 117 million bales. Consumption is predicted to reach a record 128 million bales. U.S. exports are expected to return to about 16.7 million bales, “Which would be good news indeed, especially if U.S. production is under 18 million bales,” said Norris.

U.S. production should be down, due to weather and a huge swing in acreage in the Mid South and Southeast from cotton to corn and soybeans.

“Despite large crops in China and India, we’re expecting world stocks to be down by more than 5 million bales at the end of the season. Historically, that has led to higher prices,” Norris said. Now growers wait to see if history repeats itself.

Cotton has started to ride the all-commodity bullet train of big grower returns for corn, wheat, alfalfa and soybeans.

Norris understands the economic switch to corn, soybeans and other more profitable row crops, however, he points out these acres can be switched back to cotton if prices improve.

This flurry of punches from a variety of more economically stout alternative crops is not the only thing hammering cotton.

Water and weather for Calcot’s newest members has played a negative role.

“Perhaps the biggest unknown is water availability in the irrigated West. Timing of water is another issue,” he said.

The El Paso area had too much rain in 2006, while the Corpus area had a serious drought that cut Calcot’s anticipated south Texas bale handle in half.

This year the tables were turned. Corpus Christi had 22 inches of rain in July and rather than being finished with ginning by now, growers are still picking. El Paso also had a wet 2007 spring, but nothing like the Coastal Bend area of Texas.

“Considering the wet spring you had, it’s hard to complain about lack of water, but the winter forecasts are not optimistic at this time,” he said. “Increasingly, there’s greater competition for less supply and that will probably do nothing but get more extreme.”

Another haymaker in the making is the new farm bill. The House has passed an “about as good as it’s going to get” farm bill said Norris. Now cotton growers must wait for the Senate to act, and senators are “talking about something else altogether” different than the House passed.

Norris noted that the Senate is promising a farm bill by the end of the year, but what comes out of a House/Senate conference committee faces a presidential veto, if it does not “conform to administration ideas.” Regardless of what finally comes out of Congress, it will be different than the current farm bill, Norris said.

The recent resignation of Agriculture Secretary Mike Johanns only adds “another layer of complexity to this process.”

And finally, there is the World Trade Organization sucker punches. One already has landed and changed U.S. trade policy for cotton with other challenges likely to have a big effect on grower decisions.

Add it all up and Norris says, “This will be one of the most challenging years we’ve ever faced.” Nevertheless, Norris offered he is “relatively optimistic” about Calcot’s future regarding the cooperative’s ability to meet these challenges.

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