A
few years ago from around 1994 to 1997, Delta cotton planters enjoyed perhaps
the best of all worlds: Good yields, record demand, and the best prices
since the Cicil War. Profits soared, real estate values hit all-time records,
and farm debt dropped to a decade low level. Then, the Asian flu hit. For
the last 3 years, prices have dropped in the high 40's, well under cost
of production, and planters have been pinched by both yield and demand.
However, as bad as things have been recently, there is the end of a multi-year
bear market, and the beginning of what could be a bull advance that may
last several years.
Historically, cotton has been the "money" crop in the Delta, on both sides of the ledger. Often, with high yields and high prices, many farmers have become millionaires in the last 150 years of growing cotton on some of the world's best soil. However, with costs that triple that of corn, and double that of soy, cotton has also sunk many planters and investors when yield and price did not perform, and cotton became the gambler's choice in a high stakes roulette game of what to plant. Recently, growers surged into cotton as Asian economies boomed and cotton was in robust to record demand, then the same growers faced bankruptcy and foreclosures as the Asian countries fell into a currency driven economic decline. Last year, the cotton market dipped to the lowest price in 13 years, bottoming out at 48% and also bottoming out some planter's hopes of staying in business.
Then came the drought. A series of half-century records for low rainfall, soil moisture content, and rainless days took yields in the Delta down to the second worst in a decade, deflating bins and gins and pocketbooks. For those who have been able to hang on through terrible prices, the drought dropped the other shoe in depriving them of the production that might have allowed them to make expenses. Mississippi easily has lost 250,000 bales, which equates to roughly $75,000,000. This kind of loss in income hits the Delta hard, along with the rest of the state. But lately, there is beginning to be a flicker at the end of the tunnel.
Spell cotton's rescue D-E-M-A-N-D. It's back, and in a big way. Both the ICAC and USDA agree that world demand will hit an all-time record high this year, challenging and maybe piercing 93 Mb. The previous high-water mark has been 88 Mb set in 1995. The drought in the US also cut 2 Mb from production, dropping a predicted 90 Mb crop to 88 Mb, and the picking is not nearly in yet. Thus, the supply/demand sheet looks to cut 4 Mb minimum from the ending stocks, suggesting prices next spring substantially higher than the current 65¢. What made the turnaround in world demand? The powerful US economic engine was reason number one, as stateside consumers have been on a textile buying binge that has seen superheated growth in consumption in the 8 to 10% range. The trade pacts signed into law the last few years have also been good for cotton. NAFTA, GATT, and the new Caribbean Initiative have all combined for more efficient use of world resources, and have stepped up demand for cotton. A Republican Congress and a Democratic President overwhelmed opposition from protectionists to pass these important bills, and Delta planters should be well aware of their influence on our bottom lines.
However, now that some better times could be ahead, several anaylsts have told me that Delta farmers shouldn't expect too much from prices this fall, as the market goes through its typical harvest pressure, and a few internal problems. The market also faces an internal situation from China, where that country will liquidate a million bales from state-owned stocks. But many analysts are very optimistic, forecasting prices of 75¢ or better next spring. And if everything falls just right, they predict cotton can surge to 85¢ longer term, even more.
Now before you run to the bank and spend this new-found wealth, better hold back and concentrate on yield. Can you imagine what economic benefits the Delta will realize if both yield and price are good next year? Now we're really talking "High Cotton!"
On the cover of this issue we pay tribute to Delta State University as DSU celebrates it's 75th year in education. Delta State has come a very long way and adds much to the Delta. We at the DBJ wish Delta State a very happy 75th Anniversary and if you have not seen what is taking place on the DSU campus these days, we encourage you to take the time and go look. Delta State University is on the way to arriving at another level in education. Good for Mississippi, great for the Mississippi Delta.