What is in this article?:
- Cotton industry evolves to survive major challenges
- China: the 800-pound gorilla
- Calcot prices
Among the threats to the profitability of U.S. cotton is China, the 800-pound gorilla in the global cotton industry. China's cotton stockpiles total more than 50 million bales, or 60 percent of global cotton stocks.
Calcot Limited cotton cooperative leadership includes, from left, Chairman Ron Rayner, Goodyear, Ariz.; Director Greg Wuertz, Coolidge, Ariz.; and President Jarral Neeper, Bakersfield, Calif.
China: the 800-pound gorilla
Speaking of China, global cotton’s 800-pound gorilla, Neeper says current world cotton pricing is partially due to artificial measures - China’s policy to hold extremely large stocks of cotton.
USDA estimates China has more than 50 million bales on hand. This represents nearly 60 percent of the world’s total cotton stocks.
“China is the biggest factor in the global cotton market,” Neeper said.
Over the last several years, the Chinese government has paid Chinese cotton growers an “artificial price” of about $1.40 per pound for cotton to build its own cotton reserves; much more than the world market is willing to pay.
This has created a conundrum for Chinese textile mills. Purchasing Chinese government-owned cotton can make Chinese-made fabric uncompetitive on the world market. Chinese mills want price relief. Government policy makers are challenged to craft a plan which meets the needs of Chinese growers and mills.
Neeper said, “This will eventually become unsustainable for China.”
He summarized the China situation with this comparison.
“China is the guy who paints a room and is pretty soon in a corner with no place to go. I don’t think they have quite figured out how to get out of the corner.”
Neeper added, “They have to figure out a way to somehow make their cotton attractive to the domestic mills to slowly work off the stocks. Maybe they’ll start subsidizing mills to encourage the use of Chinese cotton.”
Either way, Neeper says the end result will be reduced cotton exports for other cotton-growing countries to China.
The USDA expects China to increase its stocks to 58 million bales by the end of the 2013 season. If this occurs, China would have about two years of cotton stocks on hand without the production of a single boll.
Neeper says China’s strategy keeps cotton off the world market, tightens cotton supplies outside of China, and props up overall global cotton prices.
“If China continues this policy, China will again be a big player in cotton pricing in the coming year,” Neeper said. “If China releases its stocks, this could drastically drive down cotton prices.”
Other issues which can impact cotton prices include the continuing soft U.S. economy which Neeper says is in better economic shape than much of Europe. Domestic drought issues in the irrigated West and persistent drought in Texas and related crop abandonment could swing prices to the higher side.
Then there is the issue of the federal farm law. The Calcot president believes Congress will extend the previous farm bill for a year versus enacting new legislation this fall.
The cotton industry has worked hard to share direction with Congressmen on a new farm bill. Jeeper doled out kudos to John Maguire, Mark Lange, and Gary Adams of the National Cotton Council; Earl Williams of the California Cotton Growers Association; and Rick Lavis of the Arizona Cotton Growers Association for keeping pressure on Congress to pass federal farm legislation.
Calcot Board Chairman Ron Rayner also voiced frustration over mounting farm bill delays.
“Frankly, I don’t think any of the farm bill versions will move ahead,” the Goodyear, Ariz. cotton grower said. “I am not optimistic that we’ll have a completed bill anytime soon.”