The shrinking domestic cotton market and the increased dependence on exports to sell as much as two-thirds of the annual U.S. cotton crop puts merchants between a cotton bale and a hard place to move bales from warehouses into shipping channels and overseas.
The industry has a minimum shipping standard for warehouses with government storage agreements — 4.5 percent of stored bales shipped weekly.
Shippers are concerned that warehouses are not meeting that commitment, and the industry wonders if that standard remains adequate with emphasis shifted away from domestic consumption.
That's the dilemma Bobby Greene, Courtland, Ala., faced as chairman of the Performance and Standards Task Force, a group created by then National Cotton Council Chairman Allen Helms to identify cotton flow problems and to find solutions.
“The volatility of the number of bales needed to supply demand as we changed from a domestic to an export market represents a huge change,” Greene said in a Farm Press interview at the recent National Cotton Council Annual Meeting in Austin, Texas.
Greene said time constraints play a more critical role in cotton movement. “We often have a short time to ship.”
China buys U.S. cotton at various times during the marketing year, often on short notice. “China will need U.S. cotton as soon as they exhaust other supplies,” he said. “We have to be ready to ship all the cotton China will need (from the United States) in a short period.
“We are concerned that warehouses will need to ship more cotton in a shorter period of time than they are used to. We also wonder if we have the infrastructure to move it quickly enough.”
Greene said merchants “are concerned, and rightly so.”
The task force took on the chore of discovering a mechanism that may be used to determine how well the industry adheres to the 4.5 percent minimum shipping standard and then deciding if that standard remains adequate.
The ultimate goal is by identifying “the impediments to the flow of cotton and finding solutions, U.S. cotton is made more competitive in the world market” Greene said.
“We suspect that not all warehouses are meeting the 4.5 percent standard, but we've had no mechanism to determine if they abide by it. So we came up with a reporting system. Merchants have been complaining that warehouses were not shipping as much as they needed weekly to fill demand.”
The task force, composed of ginners, warehousemen and merchants, recommended that warehouses prepare weekly reports for the USDA “to determine if each warehouse with a storage agreement was meeting the standard. It will take time to evaluate that information to determine if the standard is adequate,” Greene said.
He said another bottleneck to cotton flow has been cotton not moving out of the loan. The problem often comes down to loan cotton being in warehouses farther away from shipping points.
“Merchants and Marketing Cooperatives want to move cotton under loan to a warehouse closer to ports. CCC will now allow transfer of loan cotton from one warehouse to another. That will help. Adherence to the 4.5 percent minimum shipping standard also will help. We just need to see if it is enough.”
Greene said the task force also identified a need to study cotton flow “from field to fabric” to identify “physical and administrative factors that create impediments to flow. This will be a comprehensive study and may require outside funding, maybe a Cotton Foundation project.
“We also need a common format for data on electronic warehouse receipts to show shippers where cotton is located within the shipping warehouse. The idea is to make movement of cotton to market as efficient as possible. It is not efficient now.
Greene said the task force also wants to work with the private sector to develop a scheduling tool for use by shippers and warehouses to improve flow of cotton. Some warehouses already use such a tool, he said.
“We hope to make it possible for a merchant to log onto a warehouse's scheduling tool to determine open shipping slots, status of shipping orders, and other relevant nonproprietary information. The task force will look at different aspects of cotton movement and work to find ways to improve flow. A lot of work and intra-industry cooperation has gone into the process thus far, and a lot more of both will be needed in the future to make delivering U.S. cotton market efficient.”
Greene said the diverse segments of the cotton industry have worked together to develop a better system. “We've had good efforts on this project so far,” he said.