Plunge in cotton prices plaguing growers
Posted on Jul 12, 2022 at 20:00 PM
In most years, cotton growers would take commodity prices exceeding $1.00 per pound with little hesitation. If you’d told them that the price for their crop would be near $1.40 per pound, as it was on May 4 according to multiple price indexes, they probably would have felt good about it.
However, according to cotton economists Yangxuan Liu and Don Shurley, inflation has affected cotton prices two ways, causing prices to fall from earlier this year. Yangxuan, assistant professor of agricultural and applied economics, at the University of Georgia, pointed out in a June 28 article posted on the Georgia Cotton Commission website how inflation has affected cotton prices. “Cotton and cotton-related products are discretionary items,” Yangxuan wrote. “Thus, cotton prices tend to follow the economy, with rising cotton prices during economic growth and declining cotton prices during recessions.”
Consumers faced with rising prices for food, fuel and other living expenses can choose not to spend their money on discretionary items like clothing that are produced from cotton fiber, thus reducing demand.
According to the U.S. Bureau of Labor Statistics’ Consumer Price Index, consumers paid 8% more for goods and services in May 2022 than they did in May 2021, the largest 12-month increase since 1981. Of particular concern to farmers, prices for energy were up 34% in May 2022 over the previous year.
So not only are prices declining because of reduced demand, the cost of production has gone up.
“With much higher costs this season, the present demise in price is reason for much concern,” Shurley wrote in the Southern Cotton Growers newsletter, Cotton Marketing News. “Profit will depend on marketing (how much is already priced, will prices recover and how much, and remaining price decisions), yield and fiber quality.”
Using a cost comparison tool developed by UGA Senior Public Service Associate Amanda Smith and Yangxuan, cotton production cost is around $1,200. At that cost and a selling price of 99 cents per pound, a grower would have to achieve yield of 994 pounds per acre. Georgia growers’ average yield in 2021 was 931 pounds per acre according to the National Agricultural Statistics Service. According to the USDA’s Agricultural Marketing Service, December cotton futures contracts are selling for 94.84 cents per pound.
Shurley said recent price drops may also be attributed to the June 30 USDA National Ag Statistics Report that shows nationwide cotton acres planted is 244,000 acres more than what farmers said they intended to plant when surveyed in March. Shurley said cotton prices will continue to move on future crop reports regarding the U.S. cotton crop’s condition, yield and acres abandoned.