The best news from a cotton industry analyst speaking at the Southwest Crops Production Conference and Expo was the possibility that cotton prices could increase by a dime this spring.
“We expect to see some dramatic acreage adjustments in 2002,” said David Stanford, Plains Cotton Cooperative Association, during the Southwest Farm Press-sponsored conference in Lubbock, Texas. “The Southern Hemisphere has already planted,” Stanford said, “and acreage is down 13 percent, overall. Heavy cuts are likely in other areas, as well.”
Those cuts should lower worldwide production to around 87 million bales, compared to 96.6 million bales from the 2001 crop.
Stanford said consumption should hit 92 million bales.
But, and it's a big but, world stocks remain burdensome, close to 45 million bales.
“We have not had an oversupply of cotton in the United States since 1995,” Stanford said. “We've been able to move cotton, even though prices were low. But this year, we added to the carryover.”
China holds a big chunk of the world cotton stocks. Estimates place China's stocks at 10 million to 12 million bales. “The question we have to ask,” said Stanford, “is do the stocks exist if they are not available to the market?”
Currently, China's stocks are not. Stanford said the Chinese government has not been willing to divest itself of the stocks at world market prices. Nor has the government permitted mills to buy cotton at current prices.
“China produced a big crop last year and could get a big chunk of the world market, if they were willing to sell.”
Stanford said China appears to be building its textile industry and “plans to consume more cotton.”
China's abdication of the world market leaves a gap that U.S. cotton can fill.
“We have a good start on exports for the 2001 crop,” Stanford said. “We've already hit 9.9 million bales, and the USDA estimate for the year was 9.8 million. We still have until July to move this crop. Also, shipments are in great shape.”
Stanford says the United States has a dubious advantage of being able to accept the price necessary to move cotton in the world market.
Prices hit bottom this year, even though stocks have been out of kilter since 1995, when the United States reverted to a market-oriented farm policy. “Prices remained stable because China stocks were not available,” Stanford said. “But this year, U.S. production added to the surplus.”
The strong dollar also plays havoc with U.S. cotton. “Our strong dollar creates an advantage to competitors,” Stanford said. “But we are beginning to see some changes. The U.S. economy is not as strong. Interest rates are down; consumer spending is off; we see some advances of foreign currency against the dollar.”
Reduced acreage, China's unwillingness to play in the world market for the past few years and the transition to a weaker dollar provide “room for upward movement in prices.” Stanford concedes that a 10-cent jump will do little to improve cotton farmer's equity.
He said China's entry into the World Trade Organization should change the Chinese marketing strategies. Production likely will decline, “but not by 50 percent,” Stanford said. “We have no clear understanding of what those cuts will be, so the answer to the question of whether stocks exist if they are not available will not come this year.”
What Stanford does expect for 2002 is:
- Stable currency
- Slow economic growth
- Continued pressure on U.S. textiles from imports
- Higher exports than projections
- A price increase
“Also, if we get new farm legislation in place for the 2002 crop, farmers will have an improved safety net and will save some cotton acreage for 2002 and 2003. Under the current law, we will see significant acreage reduction.”
Southwest Farm Press, Plains Cotton Growers, Inc., the Texas Cooperative Extension Service, the Texas Agricultural Experiment Station, Texas Tech University, and USDA-ARS sponsor the Southwest Crops Production Conference and Expo.