Despite some obvious benefits to cotton growers in the new farm bill, other issues remain unaddressed by the legislation, University of Georgia Economist Don Shurley said at the 2002 Southern Region Agricultural Outlook Conference Sept. 24 in Tunica, Miss.
Among the key issues ignored by current farm policy legislation, according to Shurley, are the trade and U.S. dollar valuation issues facing raw cotton, and the slumping U.S. textile industry.
So what is the outlook of the United States textile industry in the near future?
Shurley expects the industry to rebound some, but says a decrease in infrastructure and mill capacity will most likely prevent it from going back to the 10 million bale plus usage of years past.
“The market simply is very cautious about quick starts and turns because we are so dependent on the export market. If we can export 11 million plus bales, it could increase the price of cotton,” he says. “Otherwise, even if a hurricane comes on board and cuts the U.S. crop, it will likely not impact prices to a large degree.”
The good news, he says, is that cotton is more competitive in the export market with the removal of the 1.25-cents per pound differential when calculating Step 2 values, as a result of the 2002 farm bill.
Worldwide, the demand for cotton is really strengthening. The U.S. mill industry has faulted while other countries have really picked up the pace. In fact, world mill use has set new records in each of the last three years, Shurley says.
Traditionally, China produces more milled goods than it can produce in raw cotton. So Shurley believes they will be importing some cotton and should be drawing down on their stocks in 2002. Proposed new tariffs and quality restrictions, however, could put a damper on the United States importing cotton into the China market.
“There's nothing unhealthy about U.S. consumers' demand for cotton, but we're getting less and less of our cotton products from U.S. mills and growers. For all practical purposes our milling industry has been down the toilet the last few years,” says Shurley.
In addition, the farm bill did not address any potential inflation in land rent due to increased government payments. “It's very painful for growers not to realize all of the benefits Congress intended for them, because land rent is siphoning it off.”
“We currently have inflation in land rents, and that will continue even more so under this new farm bill. Some were hoping the farm bill would address that, but it has not and cannot. Increased government payments are going to be capitalized into the value of the land and into the rent, and that's exactly what we're now seeing,” Shurley says. “Loan deficiency payments are a two-edged sword. We need them and we're glad to have them. But, there's no doubt that LDP's keep land in cotton that perhaps could shift to something else. So, while we need them, their very existence continues this low-price, oversupply cycle that is difficult to dig out of, and the farm bill really didn't address that.”