The future is looking brighter for U.S. cotton growers. Producers and industry members gathered in Dallas January 4 – 6 for the Beltwide Cotton Conferences which featured speakers from all aspects of the business on a variety of topics from plant health to the economic outlook.
One of the primary reasons for a positive outlook is a serious reduction in the Chinese stockpile. The country’s National Development and Reform Commission and the Ministry of Finance sold 12 million bales of cotton last summer. While the reserve stocks remain relatively high at 48 million bales, it is believed that China could conceivably lower its stocks to 20 million bales in the next three years.
“I think one thing China is doing is they found out that storing all of their cotton is very costly so it’s not something they can continue to do,” said Leslie Meyer, an economist with USDA’s Economics Research Service and a speaker at the Beltwide Conference. “They are trying to reduce it at what appears to be an orderly fashion to not disrupt the markets too much. That is obviously good for the cotton industry and it’s not a big surprise they are unloading their stores. They’ve stated that they have a plan to continue reducing their stocks in 2017 so we’ll see how that plays out.”
Nationally, approximately 19,000 farmers grow the crop, planting between eight to 12 million acres each year. In 2015, cotton growers grew 8.5 million acres, the fewest since 1983 when acreage was reduced by government programs that encouraged land idling. Economic impact from cotton reaches more than $27 billion in direct business revenue with indirect revenue estimated to be in excess of $100 billion according to the National Cotton Council (NCC).
“I think the yields for 2016 rebounded a bit; 2015 was a pretty bad year for many areas of the world’s production which suffered from weather and pest issues,” said Meyer. “This year is kind of a rebound from that. The good thing is that even though production is rebounding, consumption is above production and that’s helping to reduce the stocks further, which will help to some extent on prices. The difficult thing with prices is that if prices get too high, it’s going to encourage unneeded production. That in turn, will be a detriment to consumption and mill demand, so it’s kind of a fine edge.”
Those in the industry are also optimistic for the upcoming Farm Bill, with the hope that new provisions might make them eligible for the Price Loss Coverage (PLC) and Agriculture Risk Coverage (ARC) programs. Cotton growers are currently not entitled to those safety nets. This inability to qualify for crop insurance stems from a World Trade Organization (WTO) settlement case brought forth in 2002 by Brazil, a major cotton exporter, who expressed concerns about WTO-prohibited subsidies which were being paid to U.S. cotton growers and the unfair advantage it gave U.S growers over Brazilian producers. In a final settlement, the U.S. agreed to several concessions, including the elimination of price and income support programs to cotton growers which are offered to the producers of other crops.
In its place is the Stacked Income Protection Plan (STAX), a revenue insurance policy that the 2014 Farm Bill authorized as a replacement for direct payments. “When it comes to cotton, it’s clear the STAX simply hasn’t worked,” said Representative Mike Conaway, chairman of the House Agriculture Committee. “The shortcomings of STAX are a reminder of the importance of having both sound farm policy and crop insurance.
Most in the cotton industry are fighting for a removal of STAX which has not proven to live up to its original expectations and hare hoping to replace it with the PLC and ARC programs created by the 2014 Farm Bill which farmers of other major crops are eligible to receive.
Meyer says that synthetics could also play a major role in the future of cotton. “It’s tough to know whether cotton will be able to keep pace with synthetics. It’s been a struggle the past few years on prices. I think they can compete if the synthetics were not subsidized which we feel like there is quite a lot of subsidation in the world of polyester, particularly in China. I think that if we can keep cotton prices at reasonable levels and consumer demand picks up a little bit with the general economy with their forecasts of that happening, hopefully cotton will get a share of that market back.”