“Over the last few years, with the collapse of the U.S. textile industry, we’ve gone from consuming the majority of the Memphis/Eastern crop to exporting it. And exporting it is a dramatically different world in terms of cotton quality,” said Ed Jernigan, chairman and CEO of Globecot, Inc.
Jernigan spoke at the Bayer CropScience 2003 Cotton Consultants Meeting in Destin, recently. Globecot computes world prices for cotton on a daily basis.
The change in quality requirements in the export market, “is not something that the farm program was designed for and the market is not prepared for,” Jernigan said. “During a two-year period when quality requirements were changing, we’ve had a lack of leadership coming from the U.S. cotton industry on knowing how to change this.”
A big problem is that the “base quality” for cotton consumed in the United States is considered discounted cotton in the export market.
“There are four basic categories when exporting cotton – discounted, par, premium and platinum, noted Jernigan. “In the discount category is a strict low middling, 1-16th (inch), which in the United States is considered the base quality.”
“The par grade is a middling, 1-3/32, the premium is a middling, 1-1/8 or higher and the platinum is pima cotton quality.
“Historically, the Memphis/Eastern crop has been grown for the domestic mills. So the only thing we exported from the Memphis/Eastern regions were low grades or anything left over. Texas style cottons also went to the export market in the discounted category. Meanwhile, the premium export market has been dominated by the San Joaquin Valley and the California/Arizona cottons.
“When the U.S. textile industry was using nearly 11 million bales, it was mostly focused on the Memphis/Eastern crop,” Jernigan said. “Seventy percent of all U.S. domestic consumption occurred in the Memphis/Eastern crop.”
With the collapse of the U.S. textile industry and the drop in domestic consumption to only 7.6 million to 7.9 million bales, “this left a large Memphis/Eastern crop to move to the export market, something it hadn’t had to do in almost 10 years.
“During the time the Memphis/Eastern crop was basically out of the export markets, the spinners around the world upgraded,” Jernigan said. “The standard became a middling 1-3/32. So it’s now a dramatically different market.”
While it appears the export market wants all the Memphis/Eastern cotton it can get its hand on, Jernigan says the market could dry up.
“Mexico is a very important market for consuming Memphis/Eastern cotton,” Jernigan said. “But Mexican consumption has stalled around 2 million bales. We don’t expect it to grow, in fact, we think it will decline in the future. That means the rest of the Memphis/Eastern crop has to move at a discount.
“This past year, 9.6 percent of the Memphis Territory crop fell below 25 in strength,” Jernigan said. “That was a highly discounted cotton. It was the certification of low strength Memphis Territory cotton against New York futures that’s actually been a drag on the market the last few years.”
There is also a shortage of premium cotton anticipated in the world next year, and Jernigan believes there are opportunities for Mid-South growers to capitalize by raising higher quality varieties.
One example, “There could be something like a FiberMax selling description,” Jernigan said. “This doesn’t come from an organized effort to sell FiberMax internationally, but mills have heard about FiberMax and how good a quality cotton it was.”
Jernigan said that overseas textile mills have begun to demand the brand primarily for its 1-1/8 staple, high fiber uniformity and high strength.
Mills also liked the brand because it proved to be a cheaper alternative to San Joaquin Valley, Australian and Zimbabwean cottons.
For example, “a San Joaquin cotton, 31-3-36 (color/leaf/staple) is offered today at almost 70 cents. A 21 is offered from 68 to 71 cents.
“The FiberMax variety is offered at 62-64 cents. That may seem like a discount to the other grades, but when you get into looking at some of the other Memphis cottons, you see the premium. The typical Texas strict low middling, one-inch cotton is selling right at 50 cents. The Memphis/Eastern strict low middling, 1-1/16, is 50-52 cents.
“There is a premium being paid for the higher grade, and it will accelerate as we go into next season.”
Jernigan noted that the world could end up with sharply depleted stocks of the higher-grade cottons, very soon.
“A major supplier of premium cotton, Australia, will be lucky to produce 1.3 million to 1.4 million bales, compared to 3.2 million bales last year. So you’ve removed from the marketplace almost 2 million bales of typically what is called a strict low middling, 1-1/8 cotton. Other premium cotton suppliers are down too.
“It’s unprecedented in my 22 years in the business,” Jernigan added. “The California/Arizona crop is sold out today. The San Joaquin Valley crop is 80 percent sold today. What that means is that we’ve entered the 2002/03 season with short supplies of the highest, premium-grade cotton.
“The challenges for the Memphis/Eastern grower are to upgrade the quality to what the export market needs.”
Jernigan says one thing that could bring a larger premium for the FiberMax brand would be if mills had access to a “solid, reliable supply” of the quality. “With the San Joaquin Valley, you have a certain amount available every year.”