Cotton price frustrations grow

Go ahead…get aggravated at the price of cotton. You have a right with December futures hovering below 40 cents and the A index floundering in the mid 40s.

Kick the tractor tire (not the dog). Slam the pickup door. Go ahead, stand in your best cotton field and yell a couple of expletives. The neighbors probably won't hear you.

However, whatever you do, don't make bad business decisions on how you market your crop. Take the current price being offered. Don't dump it in the 51.92 government loan just for spite. It likely will cost you more to do that than taking the current price, according to Dr. Mark Lange, National Cotton Council economist.

“It's an understatement to say that our domestic textile industry is under very serious economic stress.”

The council's vice president did not break his string of Dr. Doom economic outlooks for cotton when he told the American Cotton Producers meeting in California recently that the picture is not getting rosier. It's getting worse…so much so that the next time Lange brings his chart to an economic presentation, he may have to get a new price axis that lists lower than 40 cents.

Lange predicts the A index will float in the 44-cent range during harvest with a 20-million-bale domestic crop in the forecast. Right now the Loan Deficiency Payment (LDP) is about 22 cents, and he does not expect the LDP to fall during harvest like it did last year.

Cost more long-term

Dumping cotton in the loan could cost more in the long run via warehouse charges than current prices (including LDP) of a few pennies above loan, Lange said.

And, Lange's predictions are on the optimistic side. Some are predicting cotton prices in the mid-20s if this year's record crop comes in as projected on the second largest cotton acreage since 1962.

The U.S. cannot sell its way out of a surplus that will likely leave U.S. cotton stocks equal to one year's domestic mill use. The reason is the high value of the American dollar is strangling domestic cotton producers and textile mills.

NCC chairman James Echols told ACP members that domestic mill consumption today would be 12.3 million bales instead of the projected 8 million, a 4.3-million-bale domestic swing if the dollar value had not risen 30 percent from its 1995 relationship to other currencies.

That, he said, would make a big difference in today's price and offtake dilemma.

Since Jan. 1, 45 U.S. textile mills have closed with a loss of 15,000 jobs.

It's actually worse than that. Lange said only three million bales of U.S. cotton currently goes from “dirt to shirt” in the U.S. and a million bales of that is in jeopardy due to increasingly more textile imports into the U.S.

Almost 9 million bales of U.S. cotton were consumed by domestic mills in 1994.

Textile magnet

The U.S. has become a magnet for cotton textile imports, especially from Asia, said Echols and cotton farmers abroad have experienced a much better cost/price situation than American farmers.

Salvaging the U.S. cotton industry is high on the priority list for NCC, but it will require tough decisions, Echols noted.

He said eliminating the 1.25-cent Step 2 threshold is a start. Another way of mitigating the strong dollar's impact on domestic mills is with exchange rate adjustments. These two steps will cost money, and it might have to come from cotton's share of the $73.5 billion remaining in the new federal farm bill.

“It's an understatement to say that our domestic textile industry is under very serious economic stress,” he said.

“We all have a stake in trying to salvage that industry. If we don't find a way to deliver some significant assistance, we will almost certainly see many more bankruptcies and a corresponding sharp reduction in demand for U.S. cotton.”

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