While China’s continual presence in the cotton industry dominates analysts’ conversations, one respected entrepreneur’s economic assessment of the crop paid nearly equal attention to another region: west Texas.
Speaking at the Ag Update Seminar during the Mid-South Farm and Gin Show, William Dunavant, retired CEO of Dunavant Enterprises, Memphis, Tenn., said cotton production in west Texas is indirectly impacting the Mid-South’s share of the marketplace.
“Can you believe Texas is producing 8.3 million bales? It’s high-quality cotton,” Dunavant said, “and it’s cheaper than cotton from California, Arizona, the Memphis area and Australia. Texas is taking a big part of the market.”
Dunavant said 66 percent of west Texas 2005 cotton was rated grades 11 and 21. China, he added, is using this cotton and using it in “high volume. It’s definitely taking market share from us in the Memphis territory and other states.”
Dunavant said weather conditions, however, could contrast last year’s copious west Texas cotton crop with the one from the season ahead.
“Last year I said there was adequate moisture in west Texas to produce a big crop. I was correct. We had a lot of moisture and it produced a huge crop. But today, in south Texas and west Texas, the moisture content (of soils) is very, very low. They need rain.”
Dunavant said his company’s long-range forecasts have no major precipitation for that region for another 45 days.
On another topic in west Texas, Dunavant addressed concerns about cotton in the USDA loan program, which the Farm Service Agency had permitted to be stored outdoors while warehouses were at full capacity levels. Dunavant said, however, FSA recently said those bales must be moved into warehouses by April 1 (with a grace period of 15 days).
“As a Mid-South or Southeastern cotton grower, you should be unhappy about this,” he told the audience. “It works to your disadvantage. There is ample storage space in the country for this crop, though it’s not in Texas.”
Dunavant said what would be a reversal in governmental regulations means “these west Texas warehouses trying to ship cotton are getting behind everyday, and so there is going to be even more congestion.”
Dunavant Enterprises’ economists forecasted the United States to produce about 19 million bales of cotton in each of the past two years, and the nation produced 23 million-plus bales.
“The situation would seem to be more normal next year due to the lack of moisture in west Texas,” Dunavant predicted.
He foresees world production next year growing from 113.2 million bales to 118 million bales and world consumption growing to 123 million bales.
He said China would produce 26.2 million bales of cotton this year, while Chinese cotton consumption will expand from this year’s approximately 45.5 million bales to 49 million bales next. Next year, he said, China will import 18.5 million bales.
Other foreign nations Dunavant said should play a significant role in the world market for cotton are India, Pakistan, Turkey, Australia, Bangladesh and Vietnam. Uzbekistan, he noted, once a prosperous cotton trader, has sharply dropped from the U.S. market due to political tensions created by that country’s current president.
Dunavant said overall, “things are continuing to light up and speed up in world production and consumption.”
Due to China’s impact in the market, he said, the price range in May for cotton could be about 54 cents on the downside and as high as 58 cents on the upside.
“Any major surprises next year could stimulate prices to a considerably higher level in the market. I’m not predicting that, I’m just saying that all of us need to monitor production in the world.”
Dunavant said the government’s Step 2 payment program, scheduled to end in early July due to the World Trade Organization’s ruling in favor of a case brought by Brazil, would put a financial strain on domestic cotton producers.
“It’s going to be fascinating next year to watch our cotton try to regain competitive status without Step 2. But we will do it, I am confidant, we will just have to make some adjustments,” he said.