Fundamentals are in place for higher 2006-07 cotton crop prices. However, Calcot President Bob Norris stopped short of conventional thinking and predicting higher prices because he does not want to be wrong two years in a row.
There were records all around during the past 12 months; record U.S. exports of 17.6 million bales; record Chinese consumption of 46.5 million bales with imports of 19 million bales; record world consumption of 117 million bales, up 9 million from the previous record, and world production short 3 million bales of total consumption.
A 23.5 million bale domestic crop was essentially wiped out by the market with a 5.9 million bale, U.S. mill consumption, added to exports.
And the market did not respond.
With a product “clearly” in “great demand,” prices floundered, trading in a very narrow 7-cent range with the market volatility of a month-old soft drink … no fizz.
The constricted trading range, unfortunately, said Norris, was “right at the level that keeps loan deficiency levels down, too. Prices never really rose to the point growers would like to see nor did they every really fall to collect from the LDP.”
Step 2 was no help for Upland, and the Pima ELS export program was also a non-factor.
However, Pima prices “held up fairly well. While not reaching the astronomical levels of the previous season, they were consistently above a dollar,” Norris told Calcot members at the cooperative's 79th annual Western meetings in Fresno and Blythe, Calif., and Tempe, Ariz.
California Acala producers were really shortchanged. An unusual and extremely large high quality West Texas and foreign crops substituted for California SJV Acala cotton 10 cents per pound cheaper. “Mills were ready buyers at those lower price levels, making it difficult to make sales we're accustomed to,” Norris said. Making this even more discouraging were lower SJV yields after two consecutive record yield years.
California Acala producers were really shortchanged. An unusual, extremely large, high quality West Texas and foreign crops were substituted for California SJV Acala cotton, causing it to drop 10 cents per pound cheaper.
Calcot handled just under 800,000 bales on sales of $320 million as the largest marketer of Far West Cotton. Sales were off $100 million from the prior year due to lower prices and lower volume.
The bale number is expected to jump back to 1 million bales this season as Calcot markets about 125,000 bales for former SWIG members in New Mexico and Far West Texas, and about 30,000 bales from South Texas producers who invited Calcot into that part of the world to market cotton last season. Calcot marketed 14,000 bales of South Texas cotton last year. Contracted acreage doubled this season, but weather conditions in that part of the Cotton Belt were not idea for maximum cotton production.
In a normal weather year, Calcot could be asked to handle from 70,000 bales to 90,000 bales for its South Texas members.
The raw economic numbers ahead for those 1 million bales point to higher prices, “but I hasten to add we thought that a year ago, too,” he said.
World record production is estimated by USDA to be 115 million bales. Consumption is predicted to set another record at 122 million bales. U.S. exports will fall to 16.2 million bales, about 3.5 million bales less than last year.
“The best news is world ending stocks are expected to drop about 7 million bales from this time a year ago. Historically, that is a scenario for higher prices,” said Norris.
However, the president of Calcot says it has not happened yet: “I think we'll need to be farther along in harvest before we have a more solid idea of what world supplies are and where they are.”
Cotton has fallen on hard times in California and Arizona. Energy prices and competition from corn and alfalfa vie for an ever-expanding dairy industry, cotton acreage is shifting to trees and vines, and the San Joaquin Valley real estate boom is taking out farmland have reduced cotton acreage to less than 600,000 this season from a peak of 1.5 million acres. Arizona acreage has been more stable the past few years, but there are far fewer acres than there were 10 years ago.
Calcot Board chairman and Kern County, Calif., cotton producer Charles A. “Charlie” Fanucchi does not expect high costs to disappear. “It is a challenge to raise cotton in California with the high cost of water, energy and labor,” he said.
With an infrastructure geared to handle at least 1 million bales of cotton, Calcot started looking eastward for more cotton. They found it when the cotton cooperative SWIG in El Paso, Texas, folded and growers there and in South Texas contacted the Bakersfield, Calif., cooperative about marketing cotton from those areas.
Norris said this shift east does not mean Calcot will neglect California and Arizona producers. Marketing cotton from other areas is positive, said Norris, because it broadens Calcot's markets reached by increasing cotton varieties and qualities in Calcot's inventory.
“It gives us access into a world textile market that we have not been involved with. It broadens our customer base,” he added.
Norris said expansion into New Mexico and Texas is not that unusual for the cooperative created in the San Joaquin Valley almost 80 years ago. Fifty years ago Calcot moved into Arizona and 10 years ago when cotton moved into the Sacramento Valley, Calcot offered its marketing services to growers there.
One of the big questions is how low SJV acreage will fall in 2007 and what '07 holds in Arizona. No one is predicting it will increase in either Arizona or California. Norris hopes both states' acreage will remain at least at what was grown in '06.
The new farm bill will have a major impact on upland acreage in the West and indirectly Pima acreage. Calcot will be front and center of the farm bill debate, promised Norris.
Fanucchi hopes the new farm bill will be an extension of the current farm bill or “something similar. Right now it is what keeps us in the cotton business. It is a safety net we need to keep growing cotton,” he said.
Calcot's final settlement payment to growers totaled $13.7 million. Final seasonal pool for SJV Acala was 74.62 cents per pound, the lowest price since the 2002-03 season. SJV Pima seasonal pool final price was $1.20 per pound. This was the lowest price in the past three seasons, but the fourth highest price settlement price since 1994-95 season.
The final settlement for California/Arizona upland was 66.37 cents per pound. Desert Pima season pool final price was 118.63 cents per pound. SJV California Uplands final price was almost 69 cents pound. Sacramento Valley Upland brought the same price. The South Texas seasonal pool's final price was 63.07 cents per pound.