Published on 09/02/96

Drop in Cotton Demand Perplexing for Farmers

Mix one part consumer demand, a dash of soil and a few drops of water. Gently fold in a complex international marketing system.

That's a recipe for what Georgia cotton farmers and processors are thinking now.

"Nobody needs to panic about the Georgia and world cotton situation right now," said Don Shurley, a cotton economist with the University of Georgia Extension Service. "Consumers may find some lower prices or sales on cotton clothes and items and growers should look for favorable pricing opportunities."

Recent reports from the U.S. Department of Agriculture figure the national crop at 18.6 million bales. Georgia's crop is expected to be 2ÿmillion bales, just over 10 percent of the U.S. total.

Based on improving weather across the cotton belt, Shurley thinks the national crop could come in at close to 19ÿmillion bales. Standard cotton bales weigh 480 pounds.

But for the first time since 1990, demand for cotton is down.

"In the'80s we kept setting consumption records every year," Shurley said. But higher retail prices and new fabric blends, among other things, slowed down cotton use.

"It'>s certainly fair to say that as farmer prices rose, retail prices went up, too," he said. "But the entire increase didn't go to the farmer. Because the raw-material cost went up, the cost for each step it takes to get cotton from the farmer to the store went up, too."

The cotton in a typical pair of denim jeans weighs about two and one-third pounds. At 1995 prices of about 73 cents per pound, the farmer got only about $1.83 for the cotton in each pair. Labor, shipping, processing and marketing make up the rest of the retail cost.

For these and other economic reasons, as cotton use went down, so did processing and milling orders. That cut the time employees worked. Other mills closed completely as processors moved overseas, where labor costs were lower.

Farmers saw the drop in demand and planted less cotton this year.

"The U.S. doesn't typically import cotton," Shurley said. But low supplies, due to high demand in 1994-95, were a part of the formula that triggered the import of cotton to the United States.

In 1994, a normal production year in the United States but poor in other cotton-producing countries, we imported only 20,000 bales. "That amount is so small as to be mathematically unimportant," Shurley said.

But the imported amount jumped to 445,000 bales in 1995. And projections for 1996 stand at 400,000 bales.

Rising cotton imports drive prices down further. And deflated prices, Shurley said, make it harder for farmers to decide whether to plant cotton or crops such as corn or soybeans, which may return higher profits.

Crop prices are cyclical within a season, too, he said. For cotton farmers, the falling demand could push the price down into the high-60 cents-per- pound range. But that fairly low price, Shurley said, could spark demand and drive the price back up above 70 cents, where they are now.

Knowing that, some farmers may choose to contract their cotton for higher prices later in the year. The higher price per pound can more than pay for the cost to store the cotton.

In any market-driven economy, retail and wholesale prices follow the law of supply and demand. "As demand increases, so do prices," Shurley said. "When supply is greater, prices drop.

"No matter where in the price cycle we are, somebody benefits," he said. "But before long, someone else in the buying chain will have the advantage."