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Could Credit Hinder Cotton Acreage Climb?

14:02PM Jun 14, 2017

USDA is forecasting a large cotton crop in the U.S. this year which could mean new growers coming online but the financial picture may hold some cotton acres back.

Ryan Johnson has farming in his blood, born and raised in Ochiltree County, in the Texas panhandle. Yet, this is only his second season growing cotton.

“It’s actually been really good for me as far as capital wise,” said Johnson.

It’s good for two reasons, his checkbook and pest pressure. The sugar cane aphid has invaded sorghum.

“Yes, I’m definitely increasing cotton the way prices are and last year we had a full profile and I decided I really didn’t want to spray the aphid,” said Johnson. “So, I’ll go ahead and try some cotton.”

Gins in the upper panhandle are preparing for an increase too. The area had big yields and acreage last year, even record in some counties. It’s enticing farmers to plant more ‘King Cotton.’

“Up until this past year, everyone who was growing cotton around here were guys who have grown it before,” said Jerrell Key, General Manager at Adobe Walls Gin in Spearman, Texas. “I put on two or three grower meetings a year. This year, I think I’ve put on 13 or 14 meetings. [Cotton] pencils in really well right now when you talk gross dollars per acre.”

While the industry is anticipating an increase, some analysts say there are factors that could hinder cotton’s rise in the U.S.

“I’ve heard a reason the 12.2 million [expected acres] may not get up to that level is because growers cannot get the credit to put the crop in the ground,” said Ashley Arrington, founder and consultant for Agri Authority. “[That may be because] either they historically have not grown cotton or they’re just going back to cotton and the bank was a little ‘iffy’ about it or their crop plan.”

Arrington says in some areas, the cost for machinery or custom harvesting may weigh on the bank’s decision to finance a line of credit for that crop.

"The grower may be trying to do something different to say, 'Well, this didn't work out so well last year. I've grown cotton in the past and did well. Prices are supportive and I feel like I can lock it in at a profitable level. I'm going to try it this year.' The bank may have said, 'No. It's either because you can't afford the payment on a picker or we don't know about custom harvest right now and if it will fit in your expense budget. We don't know if this is going to work.' I have heard cases of banks turning down plans that have cotton for growers that have historically have not planted cotton,” said Arrington.

Key believes most of these new cotton growers with fewer acres will rely on custom harvesters.

“All of the big farmers have their own equipment but the little guy who put in 700 acres of dry land cotton [or less], they’re not going to risk it to go buy that equipment,” said Key.

That includes fairly new growers to cotton like Johnson.

“I don’t have to worry about that,” said Johnson. “I don’t have to worry about penciling that in.”

Regardless, machinery is selling fast in the panhandle for those who are buying.

“Cotton [equipment] and sprayers, cotton equipment and sprayers seem to be the highest demand [in the area,]” said Seth Gustin, General Manager of Green Country Equipment in Dalhart, Texas.

“We’ve sold quite a few CS690, a cotton stripper, and we’re taking some trades on some 7460s, some good used ones. All of the inventory is disappearing pretty quick,” said Len Gross, with Green Country Equipment in Dumas, Texas.

As the industry and market watches Texas, growers will continue on and be hopeful of another good growing season and healthy prices to go with it. 

Cotton on the move