Cotton Links


Surviving And Thriving

By Kelli Merritt
CropMark Direct
Lubbock, Texas

As I traveled recently from the Jiangsu province of China up through the Shandong province visiting textile mills, I pondered the reality that Chinese demand for cotton is expected to be down 30 percent in 2009. Overall exports to the world are down by more than 23 percent for Feb. 2009 compared to Feb. 2008. Even so, FiberMax type (36-plus staple) sales were up almost 35 percent in Feb. 2009 compared to sales in Feb. 2008 (U.S. Bureau of Census numbers). In recessionary times, some businesses prosper while many shrivel. Why is this so? And how can U.S. farmers position themselves to offer international markets the commodities they want at prices that offer both value and the potential for profit? In part, the answer lies in understanding the current changes in Asia.

China’s textile industry is heading towards consolidation, and it is apparent that the vertically integrated, progressive mills see this as a time of cleansing in the industry. Textile mills must move up the value chain if they hope to survive. Stand-alone spinners and cloth producers will have a tough time in the coming years. Readjustment of the business plan includes finding new export markets and moving to value-added products. For those who have recognized the need to adapt to a new economic environment, the future looks promising.

• Headlines report the numerous mill closings throughout China. When asked about the closings, mill managers concede that the industry is going through a major readjustment. I witnessed little remorse, just a characteristically Eastern sense of pragmatism. The recent Chinese government stimulus package provides incentives to the mills that show an ability to survive the weight of economic pressure. Vertically-integrated mills are more cost efficient in a time of intense competition in Chinese domestic markets for sourcers of the low grade end-products. This practice rewards the larger mills for specializing in a few products instead of producing large numbers of many different products. The current trend is to close or relocate the weaker mills.

• The textile industry is relocating from southeast China to central and western areas with lower costs of production and more access to resources and rural laborers. This shift allows east coast textile producers to concentrate on high-tech and value-added products. My travels were mostly along the eastern coast of the country. These coastal mills verified that the move to value-added products in their regions signals good news to Certified FiberMax producers.

U.S. Acreage Shifting

Cotton from the San Joaquin Valley (SJV) of California, has been the premium upland cotton of choice in China for many years. However, SJV production in California is dropping rapidly. Consider these statistics:

• Some economists project total 2009 SJV production of approximately 225,000 bales, down from more than 2 million bales in 2004.

• 36-and-longer staple in upland cotton has been known as SJV territory, but not anymore. As SJV production acres drop, FiberMax acres have remained steady over the past five years.

• 80 percent of the U.S. premium upland cotton (36-plus staple) market share belongs to FiberMax. Ten percent of that market belongs to SJV. Ten percent belongs to other varieties. Certified FiberMax cotton has a chance for more market share because of these acreage shifts. The majority of FiberMax cotton is grown in Texas.

Know Your Markets

Education alone will never be enough to help farmers recoup their investment in a premium seed. Effective marketing of cotton is critical to communicate accurately the cotton producer’s story – and how that story is the answer to the unique challenges facing the Chinese mills. Additionally, an increasing number of farmers are finding that marketing direct to mills has made business more streamlined and profitable. Just like the Chinese mills have gone to vertical alignment, American farmers are seeking ways to be more competitive.

We are in a massive recession, and we can choose to see this as a dreary outlook for our industry, or we can revamp our business plans as the Chinese have and see this as a great time to take advantage of progressive technology that has allowed U.S. farmers to invest in premium cotton to become world competitors in the commodities market.

Need More Information?

Kelli Merritt is a Texas cotton producer and the president of CropMark Direct, a grower-direct marketing group specializing in Certified FiberMax. Contact her at kmerritt@cropmarkdirect.com. For additional information, go to www.cropmarkdirect.com.

Return To Top