A U.S. cotton grower takes enormous risks, but unlike most farmers, his risk doesn't end when the crop is harvested. With approximately 75 percent of U.S.-grown cotton going overseas, a real risk comes after the crop is harvested.
A cotton farmer in Bishopville, S.C. runs the gamut of poor planting time moisture, battles herbicide resistant weeds, times his defoliation just right and has ideal picking weather. He gets his two-bale per acre cotton crop neatly moduled and to the gin cooperative of which he is part owner. Everything looks real good, except for the marginal price he receives for his cotton.
On the international business end of his business someone doesn't cross a T or dot an I, and his cotton, along with a cargo ship full of other growers cotton is gone. Getting it back, even when that is possible, can cost more than the cotton is worth. So, mostly it's just gone — part of the risk of doing business on an international level.
Every year the risk of growing cotton gets higher and so does the risk of selling cotton on an international market. Fortunately, the above scenario doesn't happen often. Though cotton growers may say the business of selling cotton overseas is out of their hands, it really isn't. The reason so much U.S. cotton gets to its intended destination is in large part due to the three ‘cottons’. Cotton Incorporated, The Cotton Board and Cotton International all play key roles in lowering the risk of selling cotton abroad.
Mike Watson, vice-president, Fiber Competition with Cotton Incorporated says the two big things U.S. grown cotton has going for it is high quality and high reliability. “In many cases reliability is more important than quality,” he says.
Though U.S. cotton growers sell large quantities of cotton to Mexico, Pakistan and other countries, the big customer is China.
To put the role of selling U.S. cotton to China into perspective, China's largest textile mill — one plant — uses approximately the same amount of cotton as the entire U.S. textile industry.
China is both the world's largest producer of cotton and the world's largest user of cotton. Though China's 2007 cotton crop was reported at 35 million bales, Charles Chewning, vice-president Marketing for China with Cotton Incorporated, says the real number is closer to 31 million bales. That leaves a market for approximately 24 million bales — more than total U.S. production.
Despite the rapid development of the textile industry, making China the world's largest cotton consumer and importer — cotton is not ‘king’ in China. Cotton is the country's third-largest product import after soybeans and edible oil.
Quantity import of foreign cotton has met the demand and helped cut the production costs of China's cotton textile industry on the one hand, but on the other hand, it is having a negative impact on China's cotton market and to the country's cotton farmers.
What the Chinese will do about the continued loss of income to their cotton farming industry, due to the rise in cotton imports, remains to be seen. China's actions have a direct bearing on the risks taken by U.S. growers, because of the impact on price.
There are now dozens of cotton dealers in more than 50 countries exporting cotton to China, compared with only a few in the past. The number of large state-owned Chinese cotton-importing enterprises has also increased, to more than 1,000. Many cotton dealers from the United States, big and small, have opened representative offices, branch companies or agencies in China. U.S. cotton production and processing enterprises have also begun to export cotton to China.
Other countries, such as India and Australia, are also exporting cotton to China. In 2007, India was the second largest producer of cotton, moving ahead of the United States. Utilizing modern technology, India's cotton growers more than doubled per acre yield over the past three years. Despite this impressive growth, India's per acre yield remains about half the average U.S. production.
While U.S. cotton industry has some precarious risks in selling abroad, it also has some valuable assets. In most cases Chinese, Pakistani, Mexican and other textile producing countries know that if a U.S. shipment of cotton is promised, it will be delivered — and at the negotiated price.
The other big risk-reducing advantage of U.S. grown cotton is quality. Much of the cotton grown in the world is still hand picked. Hand picked cotton contains much more trash than machine picked and processed fiber. In Chine, for example, one person spends one working day cleaning two bales of hand-picked cotton. Despite the low cost of labor, this is a cost and time-delaying process that mills don't have to worry about with U.S.-grown cotton.
Even considering the risks U.S. cotton growers take in growing the crop and the sometimes greater risk of selling it abroad, the biggest risk doesn't come from other cotton-producing countries, it comes from other fibers, according to Cotton Incorporated CEO Berrye Worsham.
In 1961 cotton made up 68 percent of the fiber market in the U.S. Market share has gradually dwindled and has stabilized since the mid-1990s at approximately 20 percent.
Much of what Cotton Incorporated and the other U.S. ‘cottons’ can say and do to promote U.S.-grown cotton is tightly governed by government regulations. For example, it's legal for Under Armor to run advertising that says in bold letters: Cotton is the Enemy. The cotton industry is prohibited by law from running negative advertising about other fibers.
Worsham notes that of Cotton Incorporated's approximately $78 million annual budget, 43 percent goes to consumer marketing. Battling other fibers is an uphill battle, but one that contributes significantly to the risk taken each spring by U.S. cotton growers.
In the U.S. cotton production took a severe hit in 2007, with some historic production centers in the Southeast and Southwest cutting acreage by as much as 50 percent. California, once one of the country's largest cotton producing states, has dropped from over 1.5 million acres a few years back to a projected acreage in 2008 of less than 150,000.
In the long-run, however, the outlook for U.S. grown cotton appears good. The demand for cotton products worldwide continues to grow and the supply of cotton continues to run below demand. The key for U.S. cotton producers is to understand that most of their cotton is going overseas and most of that cotton is going to China. Knowing how the international cotton game is played can be a big plus to U.S. cotton growers.