More of the Same

January 30, 2009 06:00 PM
 

Same song, second verse. Cotton's economic and declining acreage troubles in 2008 are predicted to hold in 2009, with many growers still undecided about how much, if any, of the crop to plant.

The undercurrent of how to deal with challenging times flowed through many of the speeches and private conversations at the Beltwide Cotton Conference in San Antonio, Texas, in early January. "This past year's market will not soon be forgotten by the cotton industry. Uncertainty and volatility have been the rule, rather than the exception,” said Gary Adams, National Cotton Council (NCC) economist, speaking at the gathering.


Due to the softening world economy, USDA projects cotton demand for the marketing year ending July 31, 2009, to be 116.6 million bales, down from 123.4 million bales in 2008. China's textile mills are expecting a production decline for the first time since 1998. USDA looks for world textile mill production to drop 5.5% this marketing year, the largest decline in history.

Adams noted that cotton could face increased competition from polyester. China's supported cotton prices recently hit more than 160% of polyester prices. In India, prices of the two are about equal, making polyester appealing to some potential cotton users.

In December, Mark Lange, NCC president and CEO, thought he saw signs that cotton acreage would at least stabilize in 2009. With rebounding soybean prices, however, he now doubts it will happen. He also worries that tight credit could crimp cotton acreage, since per-acre input costs for cotton run higher than for soybeans.

Lange also voiced concern about growers who were caught when merchant Paul Reinhart, Inc., filed for Chapter 11 bankruptcy in October. Reinhart says it had about 450 "unperformed” contracts with U.S. farmers and merchants. "Reinhart closed with a lot of contracts to producers exposed. A lot of growers have been really hurt. They are looking at their legal options,” Lange told the gathering.

World trade problems.
Larry McClendon, NCC chairman, said the ongoing battle in the Doha Round of the World Trade Organization (WTO) talks could hurt all of U.S. agriculture by handing advantages to developing nations, such as China and India. The WTO proposed decreasing the $48 billion of annual so-called trade-distorting support in the U.S. to $14 billion without increasing U.S. market access. At that point the contentious talks collapsed, but they'll restart in coming months.

"We would not have U.S. cotton programs anymore if we went to that level. It would dismantle the program,” McClendon said.

"India and China have 50% of the world production of cotton, yet they're not on the radar screen when it comes to Doha and cotton. All the rules are on one side and there are zero rules on the other side,” he said.

China, which is not bound by WTO rules, currently pays its growers about 80¢ per pound for cotton, McClendon noted. "Here in the U.S., we're just
doing our best to get to 60¢,” he said.

Opposing Doha Round proposals unites cotton farmers with other U.S. groups, such as the American Farm Bureau Federation and the National Corn Growers Association, Lange said. "I think what we're saying is being heard. We're in a difficult position. It's difficult to say this is flawed and can't go further. U.S. agriculture is largely united on this. If we made these cuts, there would be no U.S. support programs,” he said.

It all points to continuing tough times for U.S. cotton farmers. Looking back at the events of 2008 reminds everyone just how fast economic realities change in today's climate.
"At current stock levels, short-term optimism for cotton is difficult to find. However, as this past year so clearly illustrated, the landscape can and does change quickly,” Adams said.


You can e-mail Charles Johnson at cjohnson@farmjournal.com.​
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