Marketing U.S. cotton a global quandry

Growing cotton in the U.S. will provide some daunting challenges in 2007, but these may dwarf in comparison with marketing cotton over the next few years.

Though the demand for cotton products is up, so is the competition from synthetic fibers. The quest of U.S. cotton manufacturers and marketers to ‘pillage the synthetic village’ is getting more difficult, as more and better synthetic fiber alternatives come onto the market.

Mike Watson, vice-president fiber competition with Cotton Incorporated says the dwindling domestic demand and increased foreign demand for U.S. grown cotton over the past decade or so has created some difficult tasks. Principle among these tasks for U.S. cotton growers is to grow the kind of cotton China and other major importers of cotton want and need for their textile production systems.

Watson explains that cotton is grouped into three broad quality categories: fine, medium and coarse. China and most other countries that have increased textile production over the past decade use a ring spinning system. This production system works best with fine grades of cotton. Key to fine grades of cotton is staple length, typically 35 or better.

The U.S. textile industry, which now uses significantly less U.S. grown cotton than China and only about one-fourth of the annual U.S. crop, uses a rotor spinning system. This system works best with medium grades of cotton.

Over the years, U.S. producers learned how to adapt this system to varying lengths of cotton fiber, so staple length is not a critical factor. Fiber color was likewise not a critical issue, unless it was ridiculously low.

The U.S. industry, using engineered fiber selection and other technologies and learned how to utilize a wide range of cotton micronaire. All these factors combined, made the middle grade of cotton ideal for U.S. production.

“Farmers cannot make the change from medium to fine grades of cotton alone, it will take a team approach,” Watson emphasizes. He notes that the New York cotton futures standard and CCC loan schedules are based on, making it critical for changes to occur across the board. Changes are occurring and more premiums are available now for these premium grades of cotton, but these changes have been gradual, Watson says.

“Our best estimates are that worldwide, 80 percent of cotton grown is about equally divided between fine and coarse grades of cotton fiber and 20 percent falls in the medium quality range.

“The fine grades are used in high quality clothing apparel and the coarse grade for mop heads and various other products in which quality is not an issue,” Watson says. By comparison, a vast majority of U.S. grown cotton is in the medium classification.

To make U.S. grown cotton more attractive to foreign buyers, cotton breeders need to provide growers with varieties that allow them to grow higher quality cotton. Growers need to do the right things to produce a high quality crop. Ginners are going to have to be involved, because over-cleaning or over-drying can take the quality out of a cotton crop, Watson says.

The solution is simple enough: grow more cotton that meets the requirements of foreign buyers. Getting the entire U.S. cotton industry geared up to make these changes has been considerably more difficult.

Watson stresses there is a huge market for coarse grades of cotton — a bigger market for this cheaper cotton worldwide than for the medium grades U.S. producers are growing. If a grower's production system will not produce 35-36 inch staple length cotton, there is a huge market worldwide for discount type cotton.

“If a grower can find a variety that produces high yields of low grade cotton, there is a big opportunity. Growers often ask, why does my worst cotton sell first? It's because there is a huge market for this type cotton worldwide,” Watson says.

Maintaining yield and quality has long-been considered impractical, if not impossible by most cotton growers. Roy Cantrell, vice-president agricultural research, for Cotton Incorporated disagrees with that assessment.

“We have to grow better cotton than is grown in other parts of the world just to stay competitive,” Cantrell says. “We are making progress, especially with the varieties that are being planted today.”

“We've also seen tremendous improvements in micronaire. The days of having huge acreage of U.S. cotton discounted because of high micronaire are behind us now. The perception that we can't have both high quality and high yields is bogus, because you can have both, Cantrell stresses.

He notes that in China and India over 50 percent of the cotton grown are hybrid varieties. There is as much hybrid vigor in cotton as there is corn.

He points out that despite great advances in breeding for improved staple length and micronaire, it is difficult to compare U.S. cotton to China and India, because the production practices are so different.

Production issues at the farm level have become forever tangled with marketing issues for U.S. cotton growers, because such a high percentage (approximately 16 million of 20 million bales from the 2006 crop) of the U.S. crop is exported.

Mark Messura, executive vice-president global product supply chain, with Cotton Incorporated says U.S. cotton growers must face the reality that China is and will be for some time the leading market for U.S. cotton growers, and a leading market in the future for finished goods, but these won't necessarily be cotton products.

“We think China now uses about 11 million-12 million bales of cotton in the form of finished products. The per capita use of cotton goods in China is extremely low. While there is tremendous potential for growth in cotton use, the upcoming generations of consumers in China, Brazil, India and other emerging nations will have more options for fiber than any previous generation. “We cannot assume the rise in population will automatically mean a rise in cotton consumption,” Messura stresses.

He points out that approximately 80 percent of cotton exported to China comes back to the U.S. in the form of finished cotton products. The U.S. is by far the largest consumer of cotton products (approximately 24 million bales of cotton in 2006). Maintaining the U.S. market for cotton products is critical for U.S. growers. Likewise developing new markets worldwide is a must if cotton production is to continue to increase in the U.S. and worldwide.

“The whole U.S. cotton industry needs to think globally. The truth is that most consumers don't care where the cotton product is manufactured or where the cotton in it is grown. At the point of purchase, the geography is irrelevant,” Messura says.

Ric Hendee, vice-president marketing services, for Cotton Incorporated says women in the 35-45 age bracket are the biggest buyers of cotton products. However, the fastest growing segment and the one targeted as the most important to CI are women in the 18-35 age bracket.

If these buying trends are similar in China and other emerging nations, especially India, marketing cotton products made from U.S. cotton will face some interesting tasks and opportunities. In China, for example, there are more people under the age of 14 than the entire U.S. population. However, 75 percent of the youthful Chinese population is male.

Over the next 10 years, China will have more than 10 times the people in the critical 18-25 age bracket as the U.S. India, another emerging giant in cotton consumption has similar population dynamics. And, in 2007, India is expected to harvest more cotton than the U.S. and to market some of that crop in competition with U.S. cotton.

The pressure to sell U.S. grown cotton to China is intense. However, as of February 2007, U.S. cotton sales to China for the 2006-2006 crop is more than six million bales behind February 2006 sales of the 2005-2006 crop.

Though pressure to sell U.S. cotton to China continues along at a fever pace, it is not a solitary race. Twenty new fibers, all competing with cotton for market share, were introduced into the marketplace in recent years. Competition for markets with these fibers has led Watson to make it his mantra to “pillage the global synthetic village.”

Kim Kitchings, director of supply chain planning for CI, says pillaging the synthetic village will take a unified effort by the entire cotton industry. She points out that one synthetic fiber, Lycra, spent $40 million in advertising, nearly double Cotton Incorporated's entire advertising budget. She stresses this is just one of a number of fibers competing with cotton.

At the grower level, the varieties grown and production practices used are critical in making U.S. grown cotton competitive with foreign cotton for export markets. To meet USDA projections of 15.7 million bales exported for the 2006 crop, sales would have to be at record levels between February and June. Realistically, the U.S. may have as much as a seven million bale surplus from the 2006 crop.

Historically, surpluses mean low prices, which mean maximum use of government programs. In a year in which the farm bill is up for debate, that is not a good position for U.S. cotton growers.

Despite the challenges to grow and market U.S. cotton, Messura says optimism is high. There is a strong demand worldwide for cotton, and the quality of U.S. cotton continues to be high, and moving toward what is demanded by foreign importers.

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