Finally, a Bounce in Cotton Prices
Cotton prices are finally showing signs of rebounding from levels that have been depressed for years, welcome news to long-suffering growers in California’s rich San Joaquin Valley cotton belt.
March cotton futures have surged almost 20% from their December low, closing at about 56 cents per pound Friday on the New York Cotton Exchange. Global dumping had caused already-depressed prices to hit a 13-year low at the end of last year.
And global demand for U.S. cotton, a quarter of which is exported from California, increased for the third month in a row, according to the U.S. Department of Agriculture’s January report. This came as textile mills began churning out more fabric, and the world’s largest producer, China, warned of cutbacks in production.
But analysts and growers caution that the uptick in prices isn’t an indication that the heavily subsidized crop, once referred to as California’s “white gold,” will soon return to profitability. But it may be a sign that cotton prices have finally hit rock bottom.
“It’s just a signal that the corner has been turned and we’re going back in the other direction,” said Bakersfield cotton grower Greg Palla.
Palla had cut back his cotton acreage dramatically in the last two years as prices plunged. But after prices for grains and other unsubsidized field crops grown for feed plunged, he has decided to increase his cotton acreage threefold this season.
Palla and other growers got some relief from a four-year price slide last October, when the federal government renewed subsidies allowing exporters to offer lower prices to better compete with big players such as China and Uzbekistan, which were stealing a great share of the world’s cotton purchases.
Under that program, cotton growers and U.S. textile mills were paid the difference between lower world cotton prices and U.S. cotton “spot” prices in Europe.
By lowering their prices, U.S. growers should be able to drive up the volume of this year’s exports 30%, says Mark Lang, chief economist with the National Cotton Council.
Prices could rise further as the U.S.’ largest rival, China, and India scale back production and exports, analysts say, and as countries such as Indonesia and Turkey demand more of California’s crop.
“There has been a major change in attitude,” says Tom W. Smith, president of Calcot, a cooperative of 2,200 cotton growers in California and Arizona. “The mills are no longer waiting for prices to go down. They’re going ahead and buying.”
Analysts blamed China, Pakistan and others for dumping millions of additional bales of cotton on the world market last year, pushing prices down to record lows. But it appears that the low prices took their toll on foreign growers, these analysts say, forcing many in those countries out of business.
“It’s like that old adage,” says David C. Brandon Jr., a cotton analyst with Salomon Smith Barney in Memphis, Tenn. “Low prices are the best cure for low prices.”
California growers, most of whom are in the San Joaquin Valley, export about two-thirds of their 2.2-million-bale crop, which in most years is more than the exports of any of the other 17 U.S. cotton-growing states, including the U.S.’ largest cotton producer, Texas.
But California’s share of the U.S. cotton market is slipping. As other growing areas have planted more acreage, many fed-up California growers have shifted to more profitable crops such as almonds and grapes.
The state’s total acreage has declined 28% to 850,000 acres since 1994, when cotton prices were averaging 70 cents or more per pound.
Analysts don’t expect the state’s growers to rush to plant cotton now that prices are rising, but there are some preliminary indications that the size of California’s crop could inch up as the outlook improves.
The National Cotton Council in Memphis, forecasts a 3.3% increase in U.S. planting this season to 15.35 million acres, from its survey of more than 1,000 member growers. The report, released Friday, comes almost two months before USDA’s survey of planting intentions for cotton and other crops.
Mark Borba, who grows 9,000 acres of cotton near Riverdale, Calif., says he plans to increase his planting of the longer, stronger Pima variety often showcased in products in catalogs such as Lands’ End, mainly because the subsidies are higher and the cost of growing isn’t much higher than the more common Upland variety.
Many Valley growers will delay planting decisions this season until after they’ve seen if prices will continue to rise and if the dry winter will affect their ability to get enough water for their crop.
Indeed, after four years of declining prices and haggling with bankers just to hold on to their farms, many are skeptical that the uptick can last. “It’s been pretty bleak in the past couple of years,” Borba said. “We’re maintaining a positive attitude, while anticipating a negative result.”
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California’s Cotton
The state is the nation’s second-largest cotton producer, behind Texas. About two-thirds of the cotton crop is exported, with Japan, South Korea and Indonesia as the top three buyers. Here is a look at the cotton market, which has recently begun to recover:
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Sources: Bloomberg News, USDA, National Cotton Council
Researched by NONA YATES/Los Angeles Times
