Two key factors affecting U.S. cotton exports for 2009-10 are how much cotton India will have on hand to export, and how much import quota China will issue, according to Joe Nicosia, chief executive officer, Allenberg Cotton Co., speaking at the Cotton Roundtable in New York City.
“In 2007, India exported 6.9 million bales, and was by far the largest competitor for U.S. cotton,” Nicosia said. “In 2008, U.S. exports were substantially helped by the fact that India had removed cotton from the marketplace. If not for that, U.S. exports for 2008 would have been millions of bales less, and our carryout today would be approaching 10 million bales.
“However, those bales still exist and we have to be careful. As prices start to recover, when we reach a point where we free these bales from the reserve programs in India, U.S. exports could take a very large dive.”
With ending stocks of over 8 million bales, India is an aggressive exporter now that prices have risen back above 60 cents, according to Nicosia. “If cotton prices were to drop back to below 60 cents, these agencies in India will choose not to sell their cotton. They don’t want to lose money.”
In 2008, India initiated a market support price which adds a whole new pricing dynamic to supply for export. Nicosia believes the program will also be in place for 2009-2010. “When Indian cotton is available and free, it is highly competitive with U.S. cotton. U.S. exports tend to go down, and we have to look for another marketplace, and the board spreads often have to widen.
“However, should prices go down in 2010-11, Indian cotton is removed from the marketplace and U.S. exports will continue to increase.”
Another factor to consider is the size of India’s domestic crop. Nicosia expects Indian cotton production of over 26 million bales. He plugged in 6 million bales in exports versus 2.1 million bales the previous year.
“Even with that, India’s ending stocks will be just under 10 million bales, so there is a substantial amount of cotton that is available to the world market. Should cotton prices continue to rise, all of that cotton will become free and a competitor to the United States.”
On the possibility of a monsoon failure in India, Nicosia said that rains had picked up considerably in India in July. “Currently, total rainfall is above normal and I would categorize the monsoon as being adequate to good.”
Nicosia added that excitement for cotton planting in India is rising. “They continue to grow not only in yield but in acreage, and I wouldn’t be surprised to see an all-time record crop. One thing to watch is whether the monsoons leave early, especially in areas to the north.”
China could be another big factor in U.S. exports, according to Nicosia. In 2008-09, China issued only 4.1 million bales of tariff rate quota (for imports of cotton) required under the WTO. Just recently, they issued another 1.8 million bales of quota, “which will be bought by mills in the upcoming months.”
When asked if U.S. cotton producers can compete in a world market without loan deficiency, storage and countercyclical payments, Nicosia said, “I think they can and if prices recover, they’re going to have to. In our view, at 70 cents the world is going to grow a lot of cotton.”
At the same time, Nicosia praised the U.S. farm program for its value during times of low prices. “I do believe that the United States has gotten a bad rap. We’ve taken a lot of heat for our program, whether from the WTO or competitors around the world. Many other countries have substantial support programs for their production, growers and textile industries. I don’t think we have any need to be ashamed of the level of support we have for our growers. But at 70 cents on, we’re going to have to compete without those programs because they’re going to be zero.”
That requires a fresh approach to marketing, Nicosia said. U.S. cotton producers “are being consumed so much with rebates and the free storage drug that we have forgotten how to manage our risks. Instead, we put cotton in the loan, and it sits there until we pull it out all at once waiting for a wide, adjusted world price/futures spread.
“The futures market today has a substantial carry built into it. The forward marketing opportunities are substantial, but nowhere in the United States are we taking advantage of that.
“Today, Indian, West African, CIS, Brazilian cotton are out-pricing the United States. Therefore, the front end of the market will have to go down to shut off the foreign competition. While consumption remains stagnant, competition around the world is continuing to increase. My suggestion is to continue to look forward in 2010-11 to try and use the carries that exist on the board to begin your marketing plan.”
e-mail: erobinson@farmpress.com