A firm believer in the adage that weather and the economy will always determine the price of cotton, Bob Goodman nonetheless believes growers will see continued improvement in cotton prices.
Goodman, an Extension economist at Auburn University in Auburn, Ala., projects cotton prices for the remainder of the 2003-04 marketing year will range somewhere between 57 and 65 cents.
“A further recovering world economy, coupled with a relatively weak U.S. dollar could make domestic supplies a little tighter and push domestic prices a little higher,” Goodman told his fellow economists at the Southeastern Regional Outlook Conference in Atlanta. “Look for an 18 million-bale crop, with domestic use at seven million bales and exports at 12.5 million bales.”
The 2003 crop, he says, will be the second in a row where both domestic and world ending stocks have declined. “In the past two years, world demand has exceeded production by about 12 million bales. World ending stocks for the 2003-04 crop are forecast to be in the very reasonable 34 million bale range.”
While U.S. production has not fallen, averaging 18 million bales over the past three years, demand has improved. Consumption, including domestic use and exports, has averaged 18.5 million bales per year, representing about a three million-bale increase.
This would not have happened without the shift from a domestic-driven market to an export-driven market, Goodman says. “If we had not found a way to sell cotton overseas, the United States would be out of the cotton business. A few years ago we didn't even think it was physically possible to ship 10 million bales of cotton overseas, and now we will have to ship 12 million bales every year.”
He says, “Since the loss of many domestic spinners, there has been increased reliance on exports in the U.S. market. Before 1999, about 10 million bales were used in the domestic market, and six million bales were exported. Since 1998, U.S. exports have more than doubled.”
Looking towards 2004-05, Goodman says he expects stable world stocks, increased foreign production, steady U.S. production, a weak dollar, and increased trade to push cotton prices to the 65 to 72 cents range.
Which producers will remain to enjoy any potential upturns in the cotton market may come down to a survival of the fittest.
“The low cost producers are the ones who will survive,” Goodman says. “Because of the decoupling aspect of the farm bill, and because the adoption of modern production technology will impact different parts of the Cotton Belt in different ways, some cotton production areas may become “marginalized.”
Cotton Belt producers may not have to look far to see what could be considered marginal crop production areas. In every state, Goodman says, it's not difficult to spot low cost cotton production areas, or marginal cotton land, or inefficient cotton producers.
Marginal crop production areas may not choose to produce a particular crop in marginal price years. Farmers in these areas who are unable to produce cotton as efficiently as their neighbors may choose not to produce cotton in times of low cotton prices, especially if an attractive alternative is available.
“It may be that much of the Southeast is such a marginal cotton production area,” he says. “It can be argued that in the past it has been, and alternative crops like corn, peanuts, soybeans and livestock are real possibilities in most of the region. If cotton prices are low, corn is an attractive alternative in many parts of Alabama, given the average basis of about 30 cents on top of Chicago, and given the newly rediscovered recognition of the benefits of crop rotation.”
On the other hand, he says, cotton production technology could change all of that. “The emergence of conservation-tillage in Alabama has changed cotton production tremendously in just the past couple of years,” Goodman says. “Conservation-tillage in conjunction with cover cropping has improved, and will continue to improve, the resistance of many Alabama soils to the short summers droughts that have plagued farmers for years. The old saying that “you are never more than a week away from a drought in Alabama, may someday no longer be true.”
The most critical problem in cotton production, Goodman says, is not a lack of new production technology however, but inefficient financial and farm management.
As Goodman sees it, too many farmers manage their business as if their line of credit for operating expenses was $30,000, not $300,000. “Many farmers act as if their assets were a fraction of their actual value. Even in making production decisions, farmers typically are too reactive, rather than pro-active,” he says. “How many cotton farmers do you know who could lay out, ahead of time, the steps they would follow to successfully raise a crop of cotton? How many actually do it?”