Memphis cotton merchant William Dunavant is pumped up about export prospects and prices for U.S. cotton this coming season. But he's not so excited about the quality of cotton produced in the Mid-South.
Dunavant, speaking at the 2003 Mid-South Farm and Gin Show Exhibit in Memphis, said the world's dwindling cotton carryover and strong demand makes for “an exciting time for cotton merchants, both in the United States and internationally. Once again, the excitement emanates from China becoming an aggressive player in the world. World numbers are dramatic.”
The merchant noted that world cotton carryover, which started out at 46.6 million bales in 2001/02 will decline to 38 million bales in 2002/03. “That is a dramatic drop of over 8 million bales in one year. In two years, the world carryover will have dropped 10.2 million bales. That's why we are seeing cotton prices where they are today.”
In 2002/03, China produced a huge crop of 22.5 million bales, “but they're going to consume 27.5 million bales of cotton, and their carryover is going to drop from 12.8 million bales to 9.4 million bales.
“As of yesterday's export report (Feb. 27), China had bought 1.125 million bales of cotton from the United States. Next week's report will have them at 1.2 million bales. They bought more cotton last night, which will be in the following week's report, meaning they will end up buying between 1.5 million and 1.6 million bales this season.
“They are aggressive,” he said. “Yes, they are in the WTO. Yes, they have TRQs of right at 4 million bales. But China is not importing cotton because of WTO. That's not how they play. They are importing cotton because they need it very badly for their textile industry.
“In addition, Mexico has already bought over 2 million bales of U.S. cotton this marketing year. Turkey has bought 960,000 bales and we have them on our charts to buy slightly over 1.3 million bales of U.S. cotton.”
An impending war with Iraq “could have some impact, both positive and negative,” Dunavant said. “Two days ago, the U.S. government gave some concessions to the Turkish textile industry on tariffs and duties on their goods coming into the United States. But war with a neighboring country could impact their cotton consumption in the short-term.”
Dunavant also noted that Australia, which produced 3.2 million bales last year is expected to only produce 1.4 million to 1.5 million bales this year.
U.S. growers could be in a great position if they end up holding an excess supply of cotton — a supply which the rest of the world will desperately need.
Dunavant explained that while world production will rise in 2003/04 due to higher prices, “we should also see world consumption next year increase from 96.2 million to 97.7 million. World carryover drops again to around the 36 million bale level.
“Again that's positive for prices. Those numbers have got to get us to sit up and take note. Cotton prices for new crop are not going to head south at the current time.”
China's production in 2003/04 will also rebound to 25 million bales. “That's a big crop. But consumption will rise to 28.5 million, a million bale increase. China will continue to put pressure on the carryover and be force fed to be active buyers of cotton in the world. With a 6-million-bale carryover, the United States is going have cotton for sale. Those numbers really pump me up.”
The merchant expects 14.26 million acres of cotton to be planted in the United States this coming season and a crop of 17.7 million to 17.8 million bales. “Our carryover is 5.5 million bales and we project exports of 11 million bales.”
As he did at last year's meeting, Dunavant expressed concern about the quality of the Mid-South and Southeast cotton crop. U.S. growers have some catching up to do.
“Five years ago, Uzbekistan, which produces 4 million bales of cotton a year, produced the lowest priced cotton in the index of foreign growths. Today it is the highest priced cotton of the cheapest five growths in the index. They have gone from the bottom to the top. Their government has made a dedication to the improvement of their fiber, the seed, the bagging and doing away with contamination.
“The mills in China would much rather have Uzbek cotton than California/Arizona cotton or any other growths produced in the world. The California/Arizona crop has been a real premier cotton for China over the years.”
On the other hand, “Mid-South and Southeast cotton producers have considerably damaged their reputation in the U.S. and world market because of quality — high micronaire, short staple, lower grades. Some areas produced great quality, but in general, the Mid-South and the Southeast are the low men on the totem pole.
“This must change. We are going to export approximately 10.8 million bales of cotton, next year. Domestic consumption is drying up, as we all know, so you have to gear yourself for the export market. I understand that yield is the name of the game and I respect that.
“We are able to sell this 41-4/34, 42-4/33 to China. So we are finding a home for your cotton. But it's sad to see Uzbek cotton selling at 64.5 cents landed China, and Memphis Territory and Southeastern cotton selling at 52-53 cents landed China. That is 12.5 cent disparity and a lot of weight from your bottom line.