Ed Jernigan tells a story from the book, “Who Moved My Cheese?” In the book, the mice in the story went to the same spot everyday to get cheese. Then somebody moved the cheese. “A couple of mice kept going to the same spot and they starved to death,” says the president and CEO of Globecot and the Jernigan Group.
Drawing the analogy to cotton, Jernigan says the “cheese has been moved. If everybody wants to keep going to the same spot, it’s going to cost somebody a lot of money.”
The standard of quality has largely changed in the world, reflecting China’s dominant position in the market.
Jernigan made the comments at a FiberMax Field Day, standing at the edge of a cotton field in Sellers, S.C.
He pulled few punches in saying that the U.S. premium-discount schedule is out of touch with the marketplace, the farm bill is meant for a different time and a different place than today and, like it or not, this is the Chinese Century.
“Quality is going to be a huge deal, whether anybody likes it or not,” Jernigan says.
There is hope, however. Those growers who produce high-quality cotton that differentiates itself will be rewarded. Those growers who produce commodity-type cotton, however, will be the losers.
The “cheese” has changed. China came courting for cotton on the world market last year, following a crop disaster. They were looking for 1 1/8 cotton, but found 1 1/16 cotton. They were not happy with the selection they found from the U.S., despite buying more than 36 percent of the U.S. crop last year.
Predicted to use more bales than they produce again this year, China will again be on the import market. Analysts predict some 28 million bales of cotton production in China, with a demand of 36 million bales, “which means they’ll import the same volume or greater this year” than they did last year, Jernigan says.
It is anticipated that China will remain the largest customer of U.S. cotton.
“The question is, will the United States have the right quality?” Jernigan asks.
To answer his question, he returns to the Chinese market. There, the top grade is called Type 129. It is the equivalent of 1 1/8. In late September, the price for that cotton was 78 to 81 cents per pound. The Chinese quote a low grade 1 1/16 at around 63 or 64 cents per pound.
“That’s a 15-cent discount,” Jernigan says. “What does that matter to the U.S. farmer?”
Look to the loan schedule for the answer, he says.
Chinese discounts for 1 1/16 cotton are twice what the U.S. loan schedule is. There’s about a 7.15 cent difference between low middling 1 1/8 and low middling 1 1/16. That means it is going to be very difficult to sell 1 1/16 — except on price.
In actuality, U.S. 1 1/16 is now discount cotton on the world market, Jernigan says. In China, it is used in open-end yarns and is a discount. “The world, unfortunately, or fortunately, has changed now that the U.S.’s largest customer is not domestic mills,” Jernigan says.
He blames the U.S. premium-discount schedule for not offering enough premiums for staple length, strength and micronaire and not enough discounts for lower grades.
“Quality does matter,” he says.
Speaking on the quality crisis in Georgia, Jernigan says, “The bottom line is, Georgia is an example of producing for the loan. They produced for the loan and did not pay attention to quality.
“A couple of weeks ago, someone e-mailed me an article that said growers are better off producing for the loan than they are for quality,” Jernigan says. “I almost stopped and called the guy and said, “Let’s go debate this somewhere.”
Last year, almost 64 percent of Georgia’s cotton crop was 1 1/16 or shorter. “A lack of fiber uniformity...will bring discounts,” Jernigan says.
“Now, nobody wants to buy Georgia cotton,” Jernigan says, “and more than 75 percent of the remaining domestic mills will only buy it under specific quality parameters.
“I’m not always going to be right about the price,” he says, “but I do feel strongly about the quality issue. Quality does matter and it will matter more as we go forward in the next several years.”
Moving through prepared remarks on index cards, Jernigan next came to the farm bill. Referencing the recent WTO ruling that the cotton program violates trade rules, Jernigan said, “I believe the farm bill was designed for a different place and a different time.
“If the U.S. produces 21 million bales and uses only 6 million domestically, it only exports on one level — price,” Jernigan says.
“If I’m sitting in Brazil, then I’m crying about the U.S. farm program,” Jernigan says. “They’re crying because the U.S. is driving cotton into the world market at the world price. That’s the U.S.’s right, but the bottom line is, there are going to be some changes.”
“Those changes will be that growers who produce high-quality cotton that differentiates itself will win,” Jernigan says. “Those growers who produce commodity-type cotton will be the losers.”