Cotton acreage is expected to shrink again in Arkansas in 2015, possibly by as much as 40 percent to around 200,000 acres.
The decline matches a national trend as planting decisions by growers are being driven by low commodity prices, competition from synthetic fiber and surpluses in countries such as China.
The drop in acreage is expected to take a serious toll on the infrastructure needed to support the crop, resulting in more closed gins and decisions by farmers to sell crop-specific equipment, such as cotton pickers, which can cost as much as $750,000.
"It's been declining over the years," said John Fricke of Pine Bluff, president of Planters Cotton Oil Mill Inc. who serves as vice president of the Cotton Council's cotton seed segment.
Fricke said the drop in acreage will translate into lost infrastructure as producers sell equipment and gins either close or reduce production. He said his own company, which converts cotton seed into products such as dairy feed and vegetable oils, has been cautioning customers about potential supply shortages as acreage is cut back.
A survey conducted by the National Cotton Council last month projected that cotton planting would drop nationally by 14.6 percent to 9.4 million acres in 2015. Growers planted about 11 million acres in 2014.
In Arkansas, the survey indicated cotton acreage would decline by about 39 percent to 203,000 acres, compared to 335,000 acres last year.
An updated estimate on prospective plantings on all row crops is due for release March 31 by the National Agricultural Statistics Service.
Cotton acreage has been shrinking in Arkansas since 2006, when growers planted 1.17 million acres and produced 2.5 million 480-pound bales, according to the U.S. Department of Agriculture's National Agricultural Statistics Service.
By 2013, planting had dropped to 310,000 acres -- the all-time low for the state, according to records going back to 1909 -- before rising slightly in 2014. The service forecast that 2014 production would hit 820,000 bales.
"It's a whole new world," said Andrew Wargo III, a land agent for the Baxter Land Co. in the Desha County town of Watson.
Wargo said the economics of growing cotton relative to other commodity crops is pushing growers away. He said not only does cotton have high input costs to plant but the equipment needed to grow and harvest it is unique and also can't be used for other crops.
That pressure is being felt by his company, Wargo said. Over the past five years, Baxter Land Co. has reduced the amount of cotton acreage it manages or leases from around 6,000 acres to about 1,500 last year.
"So much of the equipment, particularly the harvest equipment, that's required for cotton is unique only to cotton," said Wargo, who said combines and grain carts can be used for rice, corn, soybeans and grain sorghum with relatively simple modifications. "It's going to be truly hard to justify a three-quarter of a million dollar outlay for a cotton picker when you can, for a $100,000 or so less, buy a combine that you can use on two or three crops."
Brandy Carroll, assistant director of commodity programs for the Arkansas Farm Bureau, said the state already has lost a considerable amount of its cotton infrastructure over the past few years.
"Many gins have already closed, and some that haven't necessarily closed permanently and liquidated still haven't operated in two to three years," Carroll said.
While the price of many agricultural commodities has declined generally in recent years, cotton is under additional pressure, she said, such as the drop in the price of crude oil used to produced synthetic fibers used in cloth.
"You're looking at cotton competing with those cheaper synthetics, which are currently somewhere around 50 cents per pound," Carroll said. "Even with cotton as depressed as it is, it's still more than that a pound, it's still above 60 cents per pound."
Scott Stiles, an economist with the University of Arkansas System Division of Agriculture, said cotton future prices would have to rise to above 70 cents per pound to compete with corn, soybean and grain sorghum.
Cotton for December delivery was trading last week around 62 cents to 63 cents per pound, he said.
"We're not close to a price level that's going to compete with other crops," he said. "Most of [the acreage] will shift to soybeans, grain sorghum or corn. The returns for any of those three look better than cotton right now."
The decline in the number of cotton gins in the state reflects the acreage drop, Stiles said. In 2000, Arkansas had 86 gins. That number dropped to 39 by 2013, and Stiles expects it to shrink further when the official count for 2014 is released in May.
Another factor pushing down cotton prices is surplus stores in places such as China, the world's largest user of cotton.
Jeff Johnson, an analyst at Allenberg Cotton Co., told attendees at the Arkansas State University Agribusiness Conference on Feb. 11 that it could take two to three years for the world cotton surplus to ease and prices to rise.
"If the world of cotton took the year off and didn't grow a bale of cotton, we'd have almost enough surplus in stock to satisfy our global consumption," said Johnson, citing USDA projections that as of July 31, worldwide stocks will hit 110 billion bales.
Johnson said that across southern states, growers are talking about producing less cotton as margins shrink. He said farmers in several other nations, including China and Australia, are talking about reducing production as well. But he said India, with its proximity to China and low transportation costs, is expected to keep its current production levels even as prices fall.
As far as demand, Johnson projected that lower prices mean that cotton is becoming more competitive compared to man-made fibers such as polyester and has actually seen demand grow.
"The market is working," Johnson said. "The market is curtailing this production in the world and sending a message to consumers that cotton is cheap relative to polyester."
But China also has excess production capacity for polyester, he said. That means that cotton, even though its price has dropped, is struggling to regain the blend level it once had in clothing made in China.
Manufacturers worldwide are expected to use more cotton than what will be produced in 2015-16, according to a report released earlier this month by the Agriculture Department's Foreign Agricultural Service. The report said low prices are expected to reduce global stocks by 3 percent, most of which will be in China as it reduces imports.
The report said that even with reduced acreage, a combination of lower exports and flat use in U.S. mills will leave U.S. stocks relatively unchanged.
Price pressure means growers will be taking a hard look at overall commodity prices when they make planting decisions.
Despite the price pressure, Carroll said many farmers who like to plant cotton will try to ride out the price pressure, given what both she and Fricke described as the cyclical nature of agriculture.
Carroll said changes over the past few years have created a core of people with good land for cotton crops and a strong family history of raising the crop. That, combined with larger farms, crop diversification and crop rotation, is giving farmers more options.
"At least the ones I talk to seem pretty resolute in the fact that they can ride this one out," Carroll said.
Fricke said that spills over to gins, seed-crushing operations, warehouses and suppliers.
"I think we are at a floor on cotton acreage," he said. "For my business, yes, we're going to have to be lean and mean, which we have been gearing up for the last couple of years because this is not something that just happened to us."
SundayMonday Business on 03/15/2015