A runner in a hurdles race must jump and clear multiple obstacles to finish a race - much less win. The U.S. cotton industry continues to face its own challenges with no finish line in sight.
Among cotton’s high hurdles include lackluster fiber prices, low price challenges from cotton’s top competitor - polyester, and huge cotton stockpiles in China, says Jarral Neeper, president of the Calcot Limited cotton cooperative based in Bakersfield, Calif.
On the price side, prices are stuck in the doldrums. Neeper says the key December Upland cotton futures contract was about 65 cents a year ago. Now, it's at about 61 cents.
“In between, it’s done a whole lot of nothing,” said Neeper, speaking at Calcot’s 88th annual meeting in Tempe, Ariz. in late September.
“I am hard pressed to remember a year that has seen as little volatility as this one.”
Historically, Neeper says prices over the course of a cotton season tend to range from 16-20 cents between the highs and lows.
“The 2014-2015 marketing season has seen a range of about nine cents, and that's something of a stretch,” the cotton marketing executive said.
“All in all, the cotton marketing season was unremarkable with few opportune pricing chances. Growers who held onto cotton hoping for higher prices likely didn’t see it.”
World economy, Chinese stocks
In part, Neeper blames soft prices on a continued slow world economy and the weight of China’s large stocks on the global cotton industry’s toes, along with fear that China would release large volumes of those stocks and pressure prices even more.
Despite weak prices, one high note this year was that Upland cotton growers could utilize the marketing loan gain provisions of the farm bill which Neeper says definitely helped improve final prices.
Looking at 2015 U.S. cotton acreage, the 8.56 million of acres planted is about 2.5 million acres less than last year. In fact, 2015 cotton acreage is the second smallest planting nationally since USDA started tracking planted acreage in 1909.
'Ridiculously low' polyester prices
Neeper calls the current cotton marketplace a disappointing ‘puzzle’ based on polyester pricing at “ridiculously low” prices tied to cheaper oil and the excessive production capacity of synthetic fibers.
Neeper said, “Synthetics are disturbingly popular at the moment.”
In addition, China has about 65 million bales of cotton stockpiled – some bales sitting so long that it’s unsure how much is actually useable.
Other issues include yield problems caused by monsoon storms in India. Neeper says India has replaced China as the world’s largest cotton producer. Adding to the mix to taint cotton’s progress is the volatile world economy, plus consumer demand for cotton products is somewhat lackluster.
Yet one positive sign on the horizon is that some areas of the apparel industry are pushing to increase cotton use in cotton-rich fabrics.
Year's stock supply
Huge stocks are depressing prices and the cotton market. Neeper says about a year’s worth of cotton for textile mill use is currently on hand - about 111 million bales.
Neeper explained, “If the world didn’t produce a single bale next year, there’s enough cotton available to supply the world’s mills for a year.”
He believes the level could shrink slightly to 106 million bales.
Back to China, the Calcot leader says two-thirds of the world’s cotton supply is stockpiled in the Asian country. Uncertain is the age, quality, and price of the stocks which is causing buyers to look elsewhere for high quality cotton.
“Good quality cotton in the rest of the world is in relatively short supply and this has kept cotton prices from collapsing,” Neeper said. “Yet the threat of using those stocks, or shifting more into cheap polyester, is also hampering cotton’s ability to price itself higher.”
These issues are not the only ones dampening cotton plantings. The lack of water in the West plays a significant role in reduced cotton acreage. This year, California has the fewest acres planted to cotton since before the Great Depression.
“California probably would have planted more cotton if not for the severity of the ongoing severe drought, but not substantially more, and that no doubt would have been more Pima cotton,” Neeper said.
Relief in sight?
Meanwhile, western cotton growers have their eyes peeled skyward this fall and winter for possible relief from the expected strong El Niño weather system, perhaps the strongest El Niño in history.
Neeper said, “We’re all hoping and praying for the monster El Niño which forecasters say is likely, but who knows what will happen,” Neeper said.
The Calcot organization was formed in California in 1927 and today markets cotton for growers in four states – California, Arizona, New Mexico, and Texas.
Keys to successful businesses
Calcot Board Chairman Greg Wuertz discussed the co-op’s longevity and how the lifespan of most businesses, regardless of the industry, is 40-50 years. Calcot has been around almost twice as long.
Wuertz, an Arizona cotton grower and Calcot’s ninth chairman, cited findings from a study which focused on the reasons why many businesses succeed over the long term.
One reason is a company’s ability to adapt, change, and learn. Second is its ability to build a community and a personality.
“This is natural for cooperatives,” Wuertz said. “Mill buyers know Calcot, its reputation, and they know our growers produce top quality cottons. Calcot members know they’re treated fairly and honestly.”
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A third trait linked to company longevity is tolerance and the ability to build constructive relationships with other entities, employees, and staff. The final trait, according to the study, is strong financing and a company’s ability to govern its own growth and evolution.
Wuertz added a fifth item to the list – the desire to pass an association along to the next generation, similar to farmers passing down their operations to their children, which can add decades to the operation’s longevity.