Tougher Times Forcing Some Cotton Producers to Give Up
“For Sale” signs mark the farms that surround Fred Starrh’s cotton farm in Shafter, Calif.
Years of rising costs for energy, labor, fertilizers and pesticides, combined with the cost of water and its scarcity during drought years, already had made it difficult for many of Starrh’s fellow cotton farmers to grow the crop profitably, even with government subsidies.
Now the problem has gotten worse. Demand for U.S. cotton is dropping while production has reached record levels, driving prices to 30-year lows in recent months with little recovery.
With few profitable vegetable crops to switch to, many cotton growers here in California and across the U.S. South are looking to get out.
“The market right now is impossible,” Starrh said. He plans to stick it out as long as he can, but is paring back planting until he can find something else to farm. “There doesn’t seem to be any bright light at the end of the tunnel.”
Along with the South, California’s 80-year-old cotton industry is in the midst of a serious shakeout as increased production in the U.S. and China, West Africa and Pakistan has caused a global glut.
Cotton growers in Merced, Madera, Fresno, Tulare, Kings and Kern counties long have had an edge over most others because of the San Joaquin Valley’s ideal growing conditions for the stronger varieties of cotton such as Pima that command higher prices. But even that business has sagged as the recession has hammered demand for fine dress shirts and sweaters, bedsheets, table linens and towels produced from these varieties.
Some growers have left the business in recent years, and more are expected to follow as weaker and less-efficient players are weeded out, farm economists said.Most growers are expected to survive by using new technology to cut costs and increase yields. And there always will be demand for the San Joaquin Valley’s world-renowned crop, analysts said. Cotton ranks as the state’s seventh-largest crop.
“I don’t think California cotton has lost any of its sex appeal [in the world market]. San Joaquin cotton is held in very high esteem and buyers traditionally stay with what they feel comfortable with,” said David Brandon, a senior vice president and cotton specialist with Salomon Smith Barney in Memphis, Tenn.
Indeed, for much of the last decade, the crop was profitable, with prices well above the point where subsidies were needed. But in recent years, as government subsidies and prices declined and costs rose, it has become hard for most cotton farmers to break even.
Cotton is one of many crops whose growers are suffering from falling prices and increased foreign competition. One factor that has made cotton different from other crops such as produce has been government involvement and price supports. These have encouraged many growers who have lower production costs to keep planting,
driving prices down even further.
Textile Manufacturers
Reduce Production
Meanwhile, much of the U.S. textile market is crumbling, rocked by lower-cost textile producers in Asian countries who--thanks to devalued currencies that make their products cheaper on world markets--are grabbing a greater share of the global market.
More than 200 U.S. textile mills have closed since 1998, and some textile industry giants such as Burlington Industries Inc. have filed for bankruptcy protection, leaving less than 450,000 textile jobs in this country in 2001, 13% fewer than the previous year.
The remaining plants have reduced production as more apparel manufacturers decide to import their finished goods.
“Up until the year 2000, we ran all our mills seven days a week except for Fourth of July and Christmas. Now we’re running at 84% capacity,” said Duke Kimbrell, chairman of Gastonia, N.C.-based Parkdale Mills, the country’s largest yarn manufacturer. “We stop our mills once a week to keep inventory from building up.”
The drop in textile production has contributed to a plunge in consumption of U.S. cotton, which hit a 13-year low in November, down 19% from the same time the year before.
That has kept cotton futures prices hovering at 35 cents a pound, just above the 30-year-low reached in late October and far from its high of $1.13 in 1995.
Hardest hit are cotton growers in the Southeast, who supply U.S. mills. But the decline also has taken a toll on California growers as more cotton has been forced onto the export market, the traditional destination for most of California’s crop.
As prices have come down, more of the state’s farmers have tried to grow Pima, the Cadillac of cotton prized for its long fibers. But it’s a difficult crop that doesn’t take to all soils, yields less per acre and requires special handling.
Cotton Growers
Switching Crops
Others have been getting out of cotton entirely, planting trees, vines and other perennial crops.
California growers planted 870,000 acres of cotton last year, down 10% from the previous year and nearly half a million acres below the state’s peak of 1.3 million acres in 1995.
So many growers have made the switch to wine grapes, almonds and pistachios that those markets now are glutted, said Ron Vargas, a UC Cooperative Extension farm advisor in Madera and Merced counties.
“The grape industry has fallen apart this year. We’re starting to see vineyards pulled out because they just aren’t economical. It doesn’t pay to grow them,” he said.
And there are few vegetable crops that growers can turn to and make money, Vargas said.
Complicating the cotton farming industry’s problems is the indecision in Congress over the future of government subsidies.
Cotton growers receive payments based on the amount they said would be produced when registering with the government when the 1996 Freedom to Farm Act took effect.
Under that act, they also receive so-called loan-deficiency payments, often referred to as the federal “safety net” because it pays growers the difference between the world price and a higher price set by the government. The payouts were enacted to help the domestic industry compete with lower-cost foreign producers, who receive subsidies from their own governments.
However, the U.S. subsidies are set to expire at the end of this year.
Although the House passed its version of a farm bill last fall, it stalled in the Senate in December as legislators argued over how much support grain and cotton growers should receive.
Banks Cut Back on
Production Loans
The uncertainty has made some lenders hesitant. Some banks began cutting back on production loans last year, and this year some growers who can’t squeeze out as many bales per acre may have trouble finding financing at all, said Mark Bagby of Calcot, a 1,725-member cotton cooperative.
“Lenders may be reluctant [to make loans] with market prices where they are,” he said.
Some farmers are putting their land on the market in hopes of attracting bids from dairy farmers.
Starrh said he’s not ready to get out of the cotton business. He came close to breaking even last year, and with two sons and a son-in-law in the business, he wants to try to ride out the industry’s problems. Meanwhile, he’s looking into planting other crops.
“We’re trying to move, but you can’t move very fast” in this business, Starrh said.
Tough as it sounds, analysts don’t expect a wholesale exodus of growers from the San Joaquin Valley. By some estimates, production will decline in California and Arizona by no more than 15% this year.
Indeed, despite its higher costs, California could fare better than the rest of the Cotton Belt in the industry consolidation, given the high quality of its Pima and other long-staple cottons.
The trick for growers will be surviving the next several years until supply and demand are back in balance. In California, survival will hinge on two factors, Bagby said: water and the fate of subsidies.
Without some kind of government aid, Maricopa Flats cotton grower George Cappello said, he and the rest of the growers in the state won’t survive. Yet he acknowledged that with subsidies, at least at current levels, there’s often incentive to over-plant.
He would like to see subsidies kick in when prices drop too low.
“We just need a backstop to keep us from going broke,” he said.
Last year, Cappello didn’t risk running into the red. He sat out the season, leaving 400 acres--a third of his land--fallow in cotton season as the cost of pumping water to his property soared.
This year isn’t looking much better. The question is, he said, how big a loss can he survive?
“Right now, it’s a question of how gutsy do I feel,” he said with a laugh. “If you take your ground out [of production], you know how much money you’re going to lose” in water district costs, dust control and maintenance. But if Cappello decides to plant cotton--depending on water costs and production per acre--he could come out ahead or lose tens of thousands of dollars.
For many growers, the break-even point had hovered around 70 cents a pound in recent years, close to the price they could get for their crop with government loan payments.
But with the minimum wage rising, and the cost of water and fertilizer going up, that equation is changing, Vargas said.
Given Cappello’s costs to bring water to his property, he estimates that he needs to get about 90 cents a pound, based on yields of three bales per acre, to break even and perform the necessary maintenance on his tractors and other equipment.
Most years, the returns from his citrus groves, tomatoes and melons are enough to cover the difference. But this year, he’s not so sure that will happen.
“The mid-1980s was pretty bad for agriculture, but this is far worse,” he said. “All you can hope to do [in a great year] is break even.”
Industry Should Survive
and Even Thrive
Vernon Crowder, agricultural economist with Bank of America in Fresno, is a bit more optimistic about the industry’s prospects. Although times are tough, he said, the industry should survive and even thrive after some of the weaker, less efficient players are weeded out.
“You can’t put everything into trees and vines,” Crowder said, adding that farmers can’t leave hundreds of thousands of acres of land fallow.
He believes that California growers will continue to adopt more techniques to cut growing costs, packing cotton rows together more tightly and using genetically modified seeds to reduce the need for weeding and pesticides while improving yields.
“We just can’t continue to do it the same way we’ve been doing it,” Crowder said. “We have to figure out how to do better for less. Some producers will have the capacity to do that--others won’t.”
