COTTON – CHARTING NEW WATERS

BILL LOVELADY

You might have to adjust for inflation because of what happened back in the Civil War days, but I’ve never seen anything like this. This is completely unprecedented, but I thought that way three years ago when we had the big runup in March of 2008. And now we’ve even gone beyond that.

I would like to think that I am fairly well educated, but I still can’t figure out what is happening. I would imagine, however, that several things are occurring simultaneously in this market.

Initially, I suspected that the value of the dollar was causing some of this price surge. But, in talking to economists and other informed folks, that might not necessarily be the case.

It might be more of what the speculators are doing. Also, we are experiencing extraordinary economic growth in the world. One person posed a very good question when discussing this price turbulence and increased global demand. Where are we going to find the cotton to meet this demand and satisfy growth? Where will it come from?

The traditional places where it might occur are either having problems or are at maximum production levels. Until we have some technological breakthrough like we did with transgenic varieties, I just have to wonder where we’ll find this production increase.

I think we’ve just about maximized our increases
from the transgenic varieties. I suppose it will have
to come from somewhere. But where?

I don’t think it will be Brazil. That country is
already feeling the pressure to increase its corn and soybean production. There can be no denying the fact that we have some emerging middle classes in India and China that can now afford more in terms of food and fiber.

I can remember reading a National Cotton Council report about 10 years ago that stated there were 100 million people in India who had a per-capita income equal to the United States. I would be willing to bet that this number has dramatically increased.

So where does that leave U.S. cotton producers and the decisions they need to make in this new price environment? My answer to that question hasn’t changed for many years. The future belongs to those farmers who are the most efficient. There is always room for more efficiency, and the rate of increase in efficiency will vary over time.

It will still come down to the producer who can identify those efficiencies and take advantage of them. That’s who will survive and succeed in the future.

Input prices also will be so high that there won’t be any room for being a sloppy farmer. When you have nitrogen or anhydrous ammonia at $490 per ton, high seed costs and fluctuating diesel prices, there is no room for those who don’t watch their efficiencies.

And even though we hear it all of the time, you can’t emphasize enough how important it is to have smart marketing. It will always be a component for successful cotton farming.

In a way, I feel very inadequate trying to figure out what is going on in the market right now. However, I do think it’s important that farmers keep everything in perspective. I can remember when the discussion in the industry was that we would always have prices in the 50-cent range. Then all of a sudden it changed, and we were in the 60-cent range. We thought the market had adjusted, and here goes the price back down to 40 cents.

This is what I call real volatility.

We tend to think like that. When things are good, there will never be another blue day. And when things are bad, there will never be blue skies again.

In the final analysis, we are dealing with a commodity in which there will always be a supply and demand situation no matter to what extent the speculators get involved in the market.

Bill Lovelady is a cotton producer in Tornillo, Texas.