EDITOR'S NOTE — Georgia — which tied with Mississippi this past year for second in U.S. cotton production — once enjoyed a reputation within the cotton industry for high-quality fiber. But that's no longer the case. The quality of the state's cotton has declined in recent years, to the point of some textile mills avoiding the purchase of Georgia cotton and farmers losing money due to deducts in certain grade categories. In this fifth installment of a ongoing series, Southeast Farm Press takes a closer look at Georgia's fiber quality problems and what is being done to avoid the stigma of poor quality cotton.
With increasing competition from man-made fibers and a shrinking domestic market, quality is becoming more of a market preservation tool than a price improvement tool for U.S. cotton producers.
That's the assessment from Mike Watson, vice president for fiber quality research with Cotton Incorporated.
Looking at the business environment for the past 20 years, demand for cotton has increased slowly, says Watson. The U.S. situation, however, is quite different, he adds.
“If you take the United States out of the equation, world demand for cotton would be dropping. At the same time, the synthetic, man-made fibers have been increasing in demand. Polyester by itself, from a global perspective, actually has surpassed world cotton demand,” he says.
The main competition in the world for U.S. cotton growers, says Watson, is man-made fibers. “They can make it as long as they want and as consistent as modern technology allows. They can build strength into this fiber, and we're going head to head with them. That's our competition,” he says.
Man-made fibers are competitive from a mill perspective, says Watson, because they're consistent, making them easier to process. “They're also easier to purchase — it's all done with computerized inventory control. Your computer calls their computer, and a truck shows up three days later with the bales of polyester you need. You don't have to deal with futures, and you can carry less inventory in the mills,” he says.
Demand for cotton exists from one source — the consumer, says Watson.
“It has to be consumer-driven. If you let the mills make the determination, they'll run man-made fibers. The folks in the synthetic business know this. They use all kinds of wording in their advertisements. Since 2000, fiber has been introduced to compete head-to-head with cotton. Today's polyester is much more competitive, and if you don't look at the label, they can trick you,” he says.
At the same time, he adds, consumers have been trained by retailers to demand cheaper apparel. “We've had five or six consecutive years of apparel price deflation while gas, equipment, fertilizer and other things keep going up in price. Today's consumer pays less for apparel than five years ago.”
With growing competition from man-made fibers and foreign producers, in addition to consumers who expect lower prices and changes in the customer base, how do U.S. growers compete, and what can they do to survive? asks Watson.
“Yield and productivity — you can add more bang to your buck by adding a few pounds per acre. It will always trump quality as far as a computer model of your bottom line. Another thing we need to consider is how do we grow different cotton — different qualities that are targeted to specific customer segments in the world. It's not just one big market out there — there are many of them,” he says.
Quality in a product or service is not what the supplier puts in, but it's what the customer gets out and is willing to pay for, says Watson.
“We sometimes think of quality in terms of how difficult it is for us to do it. That's not what it is. It's what your customer gets out of it, and that's constantly changing because the customers' equipment, processes and quality needs change.”
U.S. cotton growers, he says, sell to the “middle-of-the road” market. This has been the traditional domestic market, he adds.
“We sell a lot to what I call the ‘basic international market’ and also a higher end of domestic market, and that's really where our domestic market is heading. They're moving typically toward the high-end goods with a greater profit margin.”
The middle-of-the-road domestic market, says Watson, is for open-end yarns and socks, t-shirts and towels. “Think mass-produced goods, and that's the standard textile industry of the past. In 1997, this industry absorbed more than 11 million bales of the cotton we sold — 7.5 million bales in the foreign markets.”
The latest projections have flipped those numbers entirely on their heads, he says. “We'll sell nearly 14 million bales to foreign customers this year. I don't like this, but I don't know what we can do about it. This is a fact of life, and we have to keep this in mind if we're to survive.”
The domestic market always has wanted the base quality — 34 staple, 3.5 to 4.9 micronaire, 80 to 82 length uniformity, 41 color and 4 leaf, says Watson.
“That has been the base quality, and that is a shrinking customer base. Our international folks and high-end domestic people are ring-spun, combed yarns — higher-priced materials. They use things like compact spinning that are new technologies. Technologies like Vortex spinning that spin at more than 300 meters per minute compared to maybe 30 meters per minute for ring spinning. It's very high productivity.
“This particular technology will consistently throw out all fibers less than one half inch in length. It's a great way to measure short fiber on a massive scale because it throws them all away. If you look at the needs for those kinds of spinning, it's a much more narrow and lower micronaire range. It's a different base for this kind of market.”
“In the export trade, strict low-middling, 41 color, 34 staple is a discounted lot. That's how you sell it to foreign customers. You don't go in, smile at them, or take them on fishing trips. You cut the price.”
Foreign customers must have higher qualities because they generally don't have bale management systems, says Watson, and they are further from their suppliers.
Whenever he speaks about quality, Watson says one of the first questions he is asked is “Why does my lowest quality cotton always sell first?”
It's because of the third market segment, he says, the “bottom feeder.” “Bottom feeders make denims, canvas, mop yarns — they make whatever. Sometimes, they'll go out and find the cheapest possible cotton, and they'll figure out later what they'll make from it. They target high-discount cottons. It's not product driven, it's price driven. They buy whatever is cheapest.”
These bottom feeders, he says, are part of the food chain. “They clean up your mess in a bad year. In a good year, they have absolutely no loyalty. They will buy from you only on the basis of price. This is a customer you sometimes need, but this is not a customer you want.”
In looking at the distribution of Memphis Eastern micronaire, Watson says there is no demand for 4.7, 4.8 and 4.8 micronaire. There's a big demand once it hits 5 because the price drops 300 points, and the “bottom feeders” grab it.
“There is no home for those higher micronaires that are in the base range. Staple length is an even more complex story. Demand is distorted greatly by the pricing system because there is very little demand for cotton that is 34 staple. To our international customers, that is a discounted length, and they won't pay full price for it. Demand jumps up for 35 and 36 staple. It also jumps up for 33 staple because they can buy it cheap. Thirty-four staple doesn't have a home.”
The United States needs higher quality cotton overall because we're competing against man-made fibers, says Watson. “That's our major competition. They can make it whatever quality they want, and we have to match that to a great extent. There will be less demand in the form of lower bases or higher discounts for base quality due to a shift in foreign customers and higher-end quality requirements domestically.”
The “bottom feeders” are out there, he says, and there will be a good demand for low quality cotton at 2000 points off the New York price.
“If you can sell it cheap, there will be a demand for it. Quality will be a market preservation tool and not a price improvement tool. There are no enduring premiums. If you go into the business, and you produce a higher quality, you may enjoy a premium for three years. But after three years, and everyone else is doing it, the premium disappears.”
There is no premium for “average,” he adds. The loan chart, in its current form, sends the wrong signals in the current environment, he says.
“A 34 staple and 4.9 micronaire are not base qualities in the markets we must sell into today. So, what do we need? We need 35 staple, and we need it badly. As for strength, 29 grams per text probably is sufficient — it hasn't been that big of an issue. Micronaire, unfortunately, has to be below 4.8, unless you want to go above 5.0, and then you can move it quick at a big discount. You need 82 length uniformity to compete against the West Africans and to be usable in modern spinning systems. And tradition dictates 31 color.”
If you can't grow that, says Watson, there is an alternative. “Grow any quality cotton you want, as long as it has a six-bale-per-acre yield — dryland — and sell it to the bottom feeders.”