ShareThisBy JANE ROBERTS
Scripps Howard News Service
Tuesday, May 15, 2007
In the first big sales of the year, cotton is beginning to move out of Memphis warehouses into the world market.
In mid-April, the United States shipped 362,000 bales, a record high for the year that began Aug. 1, followed by 346,000 bales the last week of April.
But because sales are coming so late in the season, few merchants expect the United States will be able to export the 13.5 million bales the government predicted as late as April.
At this time last year, the United States had sold 14.9 million cotton bales to overseas customers. Early this month, it had orders for 10.6 million bales.
"It makes it very clear that we are a supplier of last resort," said Carl Anderson, professor emeritus at Texas A&M. "This makes the U.S. cotton crop vulnerable because foreign markets will move their cotton first and let the United States pay to store the surplus."
To achieve the U.S. Department of Agriculture's export estimate, cotton shippers would have to ship 453,000 bales a week from now to the end of July when the marketing year ends.
"I don't think it's going to happen. They would have to have a majority of those orders already in their hands," said John Raffety, vice president of Memphis Compress, a shipper-owned warehousing company. "It's been slower than normal here."
If sales continue at the current pace, shippers worry about finding enough trucks and containers to carry out the feat.
"It comes down to availability of equipment," said William May, president of the Memphis-based American Cotton Shippers Association. "There's been a lot of movement in other commodities, and that means we are competing with them for equipment.
"It's a tight supply for everyone, and fuel costs are putting extra burdens on pricing."
Until this year, U.S. cotton moved quickly off warehouse shelves, in large part because a taxpayer-subsidy _ called Step 2 _ paid cotton exporters and textile companies to buy American cotton when it was more expensive than other cotton.
Last summer, the United States was forced to drop the subsidy in a battle decided by the World Trade Organization.
Without the subsidy, U.S. cotton is the most expensive in the world. While local merchants said China -- the world's largest consumer of cotton -- would ultimately have to buy U.S. cotton to maintain production, it found plenty of cheaper cotton elsewhere.
"The very cheap cotton out of India has been marketed, and as Indian prices have firmed up, U.S. prices have dropped, which has allowed us to grab a little market share," Nicosia said.
But he is far from relieved. "We're still substantially low in sales."
For warehousers, that's good news because they make their money on storage costs. Memphis Compress, for instance, charges $3.75 a month per bale and more if special handling is required.
But for merchants and U.S. taxpayers, the price of cotton has cost them a fortune in storage alone.
Farmers who don't want to risk selling their cotton in the fall, when the market is traditionally low, can put their crop in a government loan while they wait for the price to rise.
This year, because the price has been low, more farmers have kept their cotton in the loan. Today, about 10 million bales are still in the loan, compared to 6 million at this time last year. Taxpayers pay $2.66 a bale per month to store it. Most has been in storage since November.
"Everybody was hoping last fall that China would come in and buy a large amount of cotton," Anderson said. "It hasn't happened yet."
(Contact Jane Roberts of The Commercial Appeal in Memphis, Tenn., at www.commercialappeal.com.)
