Iowa Public Television

 

Cotton case study for all commodities

posted on November 23, 2001


In a nutshell, the source of the malaise that grips much of agriculture is, of course, the existence of ample supplies of farm commodities. There's also relatively weak demand from myriad end users ranging from manufacturers and processors to consumers.

But the fundamentals of supply and demand can be much more complex. In the past 30 years, the structure and conduct of the world economy has changed. And no sector of the world economy has been buffeted more by those changes than agriculture. An extreme case in point is the beleaguered cotton market.

 

Cotton case study for all commodities

The highest yielding cotton crop in half a decade also is the lowest priced crop in 26 years. Payments per pound below 30 cents added insult to the injury of two consecutive drought years in cotton country.

The reasons for such depressed prices are on the surface a simple case of supply and demand. There is an abundance of cotton in the world, a fact that dates back to previous years when other regions of the globe were more productive than the U-S. And a flagging economy around the planet has reduced demand growth in all sectors, including agriculture.

But, there are also a host of other factors contributing to demand. Perhaps the most apparent is knowledge. Decades ago, commodity availability was less definite, driving trade and inflation due to uncertainty of product supply. Today, that uncertainty is all but gone. The worldwide supply of commodities is a known factor. Coupled with better transportation and a generally inflation free climate, companies can now exist hand-to-mouth, eliminating the need to buy ahead.

Another factor contributing to cotton's market dilemma is technology. A new generation of synthetic materials with attributes like warmth, comfort, or specialized functionality have taken away market share from the once dominate cotton fabrics.

Perhaps one of the most hidden economic factors confronting the future of not only cotton farmers, but all commodity growers, is government farm subsidies. The expectation of continuous farm subsidies has, according to the U-S-D-A, artificially inflated land prices. Federal payments meant to go to the farmer are often figured into the price of land, driving up the costs of purchase and rental.

A tiny bright spot in the farm economy is the growing demand for organic food. The USDA reports the U.S. organic industry is now a 9-billion-dollar sector that includes 12-thousand farmers.

For the past several years, organic sales have been growing by more than 20 percent annually, and USDA and industry officials alike don't see any slowdown soon. Sales are expected to reach 20-billion dollars by 2005.


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