Cotton’s Agenda

Gary Adams

Seeking A Smoother Supply Chain

Throughout 2021, the National Cotton Council engaged with the Biden Administration and Congress on finding remedies to an economically debilitating supply chain situation.

What has been conveyed?

■ Early in 2021, the NCC, the American Cotton Shippers Association and other agriculture groups told the Federal Maritime Commission that U.S. transportation infrastructure is a key component of the U.S. cotton industry’s market competitiveness. We briefed the FMC on container shortages and the importance of trade — especially to Asian markets — and the use of forward contracts that necessitates timely shipping. A letter to Congressional Members soon after conveyed concerns and suggested solutions regarding the three major freight transportation modes as Congress considered an infrastructure package.

Declining accessibility to export containers has limited U.S. cotton’s ability to satisfy strong export demand.

More recently, the NCC described to U.S. Department of Agriculture officials the supply chain disruption’s unique, acute effect on cotton due to the: • Importance of export sales. • Exposure to increased storage, interest, insurance and other costs. • Container use as the sole export shipment method. • Reliance on Los Angeles/Long Beach ports.

We raised alarm over ocean carrier/U.S. port terminal practices that ignored the FMC’s demurrage/ detention guidelines and limited containers for agricultural export cargo. We also weighed in on those that canceled or refused export container bookings and gave U.S. shippers no timely notice of changes. We noted U.S. South Atlantic ports also faced stiff challenges and that a lack of adequate labor now is a significant supply chain constraint. We pointed out that accessibility to export containers has been further limited by record shipping costs and harmful surcharges — thereby limiting U.S. cotton’s ability to satisfy strong export demand.

The NCC also joined members of the Ag CEO Council/Agriculture Transportation Working Group in responding to President Biden’s Executive Order on America’s Supply Chains — saying the disruptions have led to “higher prices for inputs, lower prices for outputs and, in some cases, the inability to purchase goods or services regardless of price.” The NCC participated with other groups on an open letter to the President urging the Administration to continue investigating the causes of ports’ inefficiencies and to work on “minimizing the bottlenecks and operations practices that prevent the seamless movement of cargo through the supply chain.”

How about other transportation relief?

■ That open letter to President Biden asked for his leadership on surface transportation initiatives that could ease a crippling truck driver shortage and strengthen the supply chain. They included implementing a young driver pilot program, promoting transportation/supply chain careers and providing flexibility in vaccine mandates/commercial drivers’ hours of service relief.

The NCC earlier had joined the National Cotton Ginners Association and other agricultural organizations in supporting proposed surface transportation legislation. This included amendments on modernizing both the agricultural exemption to HOS rules and the Farm-Related Restricted Commercial Driver’s License that is essential for farm-related service industries. We also asked the Surface Transportation Board to implement two provisions to help address pervasive challenges faced by rail shippers, including poor rail service and unreasonable practices and rail rates, which have increased by 28% since May 2020.

A Year Of Good Yields & Prices

Farmers Across The Cotton Belt Reap The Benefits Of A Bountiful Harvest And Strong Market

BY YANGXUAN LIU

UNIVERSITY OF GEORGIA

Every year in October and November, harvest fast approached across the Cotton Belt. This year was no exception, as cotton producers worked to wrap up this busy time and enjoyed the payoff of their hard labor. The 2021 cotton harvest combined both good yields and good prices, which is rare for cotton producers.

The U.S. Department of Agriculture Crop Progress report, released Nov. 8, indicated 98% of cotton bolls opened nationwide, with 55% of cotton acres harvested. Cotton conditions have remained steady this year, with more than 60% of the crop rated good to excellent compared to last year, when only 37% rated in good-to-excellent condition.

The November USDA World Agricultural Supply and Demand Estimates report projected 2021 U.S. cotton production at 18.2 million bales. This is slightly over the U.S. cotton demand — 15.5 million bales of exports and 2.5 million bales of domestic mill use. This year’s national yield level is at 874 pounds per acre, which is the second highest on record. The U.S. ending stocksto-use ratio is forecast at 18.9% for the 2021/22 marketing year, slightly above last season but below the previous three years.

Global Snapshot

Globally, 2021 cotton production is projected at 121.8 million bales, which is 9.6 million bales more than last year. World cotton mill use is projected slightly higher than production at 124.1 million bales, 3.2 million bales above last season and the second largest on record.

Current global and domestic supply and demand fundamentals do support high cotton prices.

However, it is hard for the cotton supply and demand fundamentals to explain the recent price surge. Since the middle of September, cotton prices have skyrocketed, with December Futures rising from mid-90 cents per pound to a high of $1.22 per pound Nov. 2. If supply and demand fundamentals cannot explain the price increase, then what could be the cause of the recent price surge?

Stocks And Futures

Historically, cotton prices tend to follow the stock market — with an increase in cotton prices when the stock market rises and a decline in cotton prices when the stock market drops. After the pandemic unfolded, cotton markets have been on an upward trajectory since April 2020, with a recovery of futures prices from the low 50 cents per pound to more than $1 per pound that began in October.

Since September of this year, the stock market has been on a roller coaster ride with ups and downs. This created uncertainties for investors concerned about the next stock market price drop. Some investors pulled their money out of the market, seeking the next opportunity for a short-term gain.

Under the circumstances, other markets, such as the cotton futures market, experienced an inflow of speculative money, pushing prices higher. This money flow has pushed cotton prices to levels that exceed those indicated by supply and demand fundamentals, creating a potential marketing opportunity for cotton producers.

Marketing Tip

However, the flow of money in and out of cotton markets can also make prices unpredictable and volatile. Thus, it is difficult for producers to predict the direction cotton prices will take.

Speculative money could continue to push cotton prices higher. However, when speculative money leaves cotton markets, prices will fall sharply (possibly with a temporary correction below the price supported by global cotton supply and demand fundamentals).

For now, producers may want to consider completing 2021 crop marketings at very profitable levels.

Dr. Yangxuan Liu is assistant professor, Agricultural and Applied Economics Department, University of Georgia. Contact her at Yangxuan.Liu@uga.edu or 229-386-3512.