Don't expect LDP on this year's cotton: Smith

The government gaveth last year and the marketplace and the weatherman are likely to taketh away this year.

That's the word from Calcot president Tom Smith, who told the cooperative's members in California and Arizona recently not to expect this season anything like the peak 22-cent-per-pound ($105 per bale) loan deficiency payment (LDP) the majority of Calcot's cotton received this year.

"Right now the LDP is around four cents. World prices appear too strong to expect a large LDP and in fact, at some time during the season, we think the loan deficiency payment will go to zero," Smith said.

That means largely the marketplace alone will determine the outcome for the 2000 crop, and current prices are not high enough for cotton to be profitable for producers. "We'll need a big market swing one way or the other to make as much of this year's potential as we did last year. Looking at the current situation, the odds favor a swing up," he said.

It will likely be another volatile year, the second in a row, but as Smith has preached so many times before, volatility translates to opportunities for Calcot's marketers to capture profitable prices. And, the Far West is holding a full house to play the marketing game. It's the only place in the U.S. Cotton Belt where the crop looks to be very big and qualities should be excellent.

Worldwide cotton consumption is rebounding and world stocks, especially Chinese stocks, have been decreasing.

"World production is more uncertain than unusual, especially in the U.S.," Smith said. Planted U.S. acreage fostered an early crop outlook as high as 20 million bales. Right now Smith said it is some where around 17.5 million bales and "future events could make it even smaller than that.

"The U.S. as a whole looks like it will have a shortage of more desirable qualities which should open some additional opportunities for us in a number of markets," said Smith.

Projected record foreign consumption and foreign production lower than last year provides a "very large deficit of 14 million bales" said Smith. "If foreign consumption comes near current USDA estimates, we think U.S. exports could be eight million bales or higher."

And since the majority of the Western crop is exported, that is good news.

The only caveats Smith put on the table were high oil prices and a strong U.S. dollar stifling economic recovery in some key markets.

"Higher oil prices could make polyester less competitive, but many analysts fear that higher oil prices and the strong dollar will hurt the economy, which will lower fiber consumption overall, including cotton," noted Smith. "If this were to happen, the current wide foreign consumption-production deficit would be narrowed."

Smith's optimism spilled over to the Pima side as well. "Even with good (2000) yields, the Pima crop will be smaller than past years and consequently new crop has been trading closer to what Pima growers expect, somewhere around the dollar mark," Smith said.

Less competition Pima has had less competition from some traditional Egyptian growths and American Pima's best customers in the Far East have seen much of the same sort of recovery as in upland demand.

The market aside, Smith noted that producers start this marketing year with more certain than the last. Congress has already approved another of market assistance payments; the marketing certificate continues in effect giving all growers full market load benefits, and Step 2 is firmly in place to keep Western cotton competitive with foreign growths.

Not only did Smith give an optimistic outlook for 2000-2001, but also he filled the pockets of Calcot growers with record and near record final settlements for the 1999-2000 crop. Calcot sold 1.33 million bales of California and Arizona cotton for $567 million. The final settlement checks to growers totaled $26.3 million

"The 1999-2000 season as it turned out was a banner year for cotton, and a very nice surprise after several depressing years," said Smith. Today, cotton in the San Joaquin Valley has retained much of its luster, thanks to excellent weather, a return to high yields, favorable government programs and market opportunities that came at just the right time."

Smith said cotton became profitable again last season, but a large part of that was to timely LDP or "pop" payments that reached 22 cents. Smith said Calcot "popped as much cotton as possible at that rate."

San Joaquin Valley Acala seasonal pool producers finished the year with a record final price of 82.75 cents per pound, the highest final price ever, exceeding the 1995-96 season's price of 82.02.

For Arizona and Southern California growers, their final prices was 74.75 cents per pound, the fourth highest price paid in Calcot's desert history and "quite an achievement based on how low prices sank during the season."

Smith gave considerable credit for those prices on Secretary of Agriculture Dan Glickman's decision to authorize generic marketing certificates, which permitted Calcot to redeem cotton from the loan and not count against grower limitations.

"Calcot members owe a very large thank you to certain members of Congress, especially Cal Dooley, who coincidentally is also a Calcot member," said Smith. According to Smith, Dooley was "very persuasive" in convincing Glickman to approve the certificates just before the secretary made a visit last February to the Tulare Farm Show.

Dooley, a Kings County, Calif., farmer and dairyman, is currently in one of his tightest congressional races against a popular Republican ex-television newsman from Fresno, Rich Rodriquez, who has gained the endorsement from the Farm Bureau and Nisei Farm League.

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