While the U.S. cotton industry faces a plethora of challenges – including Chinese fiber stockpiles, lint price, an unresolved farm bill, and drought – the fiber industry continues to evolve given these uncertain times.
Yet Calcot Limited President Jarral Neeper remains optimistic about the future of cotton. The Far West cotton marketing executive waded through a pool of issues during the cooperative’s 86th annual meeting held in Tempe, Ariz., in late September.
Calcot, based in Bakersfield, Calif., markets cotton for about 1,000 grower members in California, Arizona, New Mexico, and Far West Texas.
Neeper says the 2012-2013 cotton season was a fairly typical cotton-marketing season compared to the previous two years of volatile prices.
Over the last 12 months, the average weekly high for Upland cotton futures was 81.85 cents per pound. The average weekly low was 78.19 per pound. The weekly average close was 79.98 per pound.
The absolute high was higher, of course, and the absolute low was lower, but on average, prices traded in a very narrow range in great contrast to recent history. The year included a 350-point range; quite the opposite of the price volatility several years ago.
“This was a return to something more normal, price-wise,” Neeper said. “We’re not as high as we were but we’re also quite a ways away from the very low prices we saw four years ago.”
In late September, New York cotton futures hovered in the low-to-mid 80-cents range. Neeper expects more of the same for the short term.
“These prices are fair enough. The market seems to be stuck,” Neeper said. “Prices must be low enough for the buyers and high enough for the sellers.”
Any talk of prices inching higher to 86 or 87 cents, Neeper says, hits a “wall of resistance.”
“In the short term, I think cotton prices will stay in this sideways band for a while unless China makes its next move or bad weather such as tornadoes and hurricanes impact a major cotton-growing region in the world,” Neeper said.
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.”
On the price side, Calcot closed out its Seasonal Pool with final Upland prices reaching up to 80.05 cents in the desert to 96.70 for SJV roller-ginned Acala and topping $1.30 per pound for San Joaquin Valley (SJV) Pima.
Calcot members with C/A and Desert Southwest with 21-2-38 and strength of 32 grams per tex or higher were paid a total of 80.05 cents per pound. Additional premiums were paid for length, color, and strength on base grade (31-3-35 with strength of 28 to 31.9 gpt) which settled at 77.00 cents.
Members with these varieties will see a final payment of 4.60 cents per pound on base grade. Final Upland payments ranged from 4.85 cents to 7.25 cents with premiums applied for grade, staple, and strength.
Neeper says California SJV saw-ginned Acala, base grade 31-3-36, maintained its traditional premiums to other U.S. Upland cottons, and paid a final sum of 5.00 cents, receiving a final price of 87.70 cents per pound.
With similar length and color premiums, 21-2-38 will settle at 90.50 cents per pound and a final payment of 7.80 cents per pound.
A considerable amount of the season’s receipts exceeded base, says Neeper, as final prices in the SJV Seasonal Pool averaged 88.34 cents per pound.
Roller-ginned Acala performed higher with base grade 31-3-39 receiving a 700-point payment and a final price of 94.70 cents. Longer staple and color premiums pushed a 21-2-40 to a nine-cent payment and a final price of 96.70 cents. SJV prices are on gin UD free terms, as opposed to net pricing elsewhere.
Calcot’s Pima growers will receive a final payment of 10.70 cents per pound, pushing American Pima from Arizona, New Mexico, and Texas to a final price of $1.29.10 per pound, and to $1.30.70 per pound in the SJV’s gin UD free pricing on California’s predominant variety.
Members with cotton in Calcot’s Call Pool saw final payments from 50-450 points and final prices of 750 and 1450 points on the futures fixation in the SJV and 450 points off fixation elsewhere.
Final payments, as approved by Calcot’s board of directors, resulted in a final settlement totaling about $10 million.
During the Calcot business meeting, Gary Martin, Mark Watte, Duane Berger, Ron Rayner, Claude Brown, and Dennis Palmer were re-elected to the Calcot board for three-year terms.
Re-elected as directors-at-large were Michael Brooks, Steve Coester, James Johnson, Keith Johnson, Melvin Pereira, John Pucheu Jr., and Jack Seiler.
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