Beltwide Update: Cotton May Compete for More Acreage

The stars just may be lining up right for U.S. cotton to launch at least a modest acreage comeback in 2010. For the first time in several years, this week's Beltwide Cotton Conference held in an unusually chilly New Orleans, La., had an upbeat feel.

U.S. farmers planted about 40% less cotton in 2009 than they did just three years ago. Cotton took a hit when corn and soybean prices climbed in 2007 and 2008. In addition, a global oversupply kept the lid on cotton prices.

"The environment in 2009 was unlike anything we've seen in 25 years or more. There was the financial meltdown and the economic decline. Commodity prices collapsed and global textile demand experienced its worst decline in more than 50 years,” says Berrye Worsham, president and chief executive officer of Cotton Incorporated.

"We lost a lot of good cotton traders in 2008-2009,” says Wally Darneille, president and CEO of Plains Cotton Cooperative Association, Lubbock, Texas, rattling off a list that includes old-time cotton merchants Weill Brothers and W.B. Dunavant and Co.
Economic Boost
Now, the possibility of the recession easing and consumers getting in an apparel-buying frame of mind is creating a buzz about a potential cotton rebound. Cotton is already working out of its top-heavy stocks situation. Prices have jumped in the past few months, making cotton more competitive with other crops. If this scenario holds until planting time, look for U.S. farmers to put more cotton in the ground.

"Over calendar year 2009, prices advanced 20 to 25 cents per pound. We are probably in a more competitive position than we've been since 2006. It looks like farmers' input prices will probably be similar to what they were a year ago,” says Gary Adams, National Cotton Council vice president of eco and policy analysis.

"An improvement in the general economy would help. The weaker dollar is supportive of cotton prices. We are expecting a tighter balance sheet,” Adams says.

Darneille says, "Since the recession began, the cotton market is almost a mirror image of the dollar index. The supply and demand of money is much more important that the supply and demand of cotton. It's become a video game for the Twitter generation.”

Global cotton production dropped five million bales over the past year while mill use for the marketing year ending in July is expected to be up 3.4%, after declining 10% the previous year, Adams says. Exports are projected to increase 3.6%. Ending stocks should decline 9.3 million bales.

"One key thing to watch is whether we actually get that decline in stocks. If we do, it will be the most significant decline since 2002,” Adams says.
The Stockpile
A number of factors cut into the cotton stockpile.
"The U.S. crop shrank. The Chinese crop suffered setbacks and so did India and Pakistan. The recession hurt. Are grains more inelastic tan cotton because people have to eat but don't have to buy new clothes? One question now is whether Japan's economic problems drag everything down,” Darneille says.

The entire industry is carefully watching China, the big dog in textiles now that most U.S. mills are shuttered, to get an idea what may happen.

"Exports depend on China. They control their market closely to keep those prices high. Cotton in China is priced at a premium compared to polyester,” Adams says.

India, too, draws attention from cotton observers.

"We have to be aware of India from the standpoint of competing with us. India emerged as a significant exporter of cotton in the last 4 years. We expect to see exports increase out of India. They'll be one to watch. If you compare their share of trade to the U.S. share over the last 5 years, they are almost mirror images of each other,” Adams says.
Chances for Derailment
Even with things looking better for cotton, negative events could derail the upswing before planters roll. Manmade fibers are priced significantly less than cotton, making them a tough international competitor. The crop competition for acres ranges world-wide, and foreign growers may also plant more cotton, which could depress prices.

Textile mills, too, will have to shrug off their doldrums. "Mills have gotten so used to buying hand to mouth for the last several years that many are uncovered now and will have to buy cotton soon. I think we're going to see mills buying and sustain these higher prices in the next 6 months,” Darneille says.

"The technical signals look good, as well. Many funds are buying commodities because of inflation fears. Cotton is still relatively cheap in terms of the historical real value of other products,” Darneille says.

If the recovery stays on track, the cotton market could handle another 10 million acres of the fiber, after losing 9-1/2 million acres since 2006-2007. No one seems sure whether it will grow in the U.S. or not, but U.S. farmers are clearly poised for a cotton resurgence.

"In the long run, can U.S. cotton compete? I think so. In India, Pakistan and China, their acreage may increase but their consumption will increase, too. Those economies continue to grow. Demand should recover in 2010. Long-term, fiber demand will outstrip growth in fiber supply. Cotton acreage has plateaued. Future growth is going to have to come from higher yields,” Darneille says.

You can e-mail Charles Johnson at [email protected].