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Cotton Inc. CEO on the Cotton Market: Still Vital Despite Volatility

While the U.S. cotton industry is dealing with depressed prices, a difficult trade environment, and hurricane season right now, its place as a key supplier of the most recognizable and consumed fiber remains strong.

“Our longer-term view is extremely positive,” J. Berrye Worsham, president and CEO of Cotton Incorporated, told Sourcing Journal. “The short term, I would say, is a little bit clouded by some of the economic indicators in the U.S. and internationally. The tariff situation and trade issues between the U.S. and China [have] probably reduced global economic growth. The IMF [International Monetary Fund] is convinced of that.”

Worsham said textile demand in general is historically sensitive to economic conditions, given its global supply chain and reliance on a range of raw materials often susceptible to volatile swings.

“So the overall business is not declining, it’s just not growing at the rate it was expected earlier,” he said. “That’s caused some inventories to back up a bit, and consequently prices have come down for all commodities–cotton, soybeans–but also other fiber prices like rayon and polyester. From that standpoint, the growers don’t particularly care for lower prices, so that’s the downside. But fortunately, that’s one of those things that normally cycles back up.”

Worsham's State of the Cotton Market:
J. Berrye Worsham, CEO of Cotton Incorporated.

The longer-term view is much better from the supply side and the demand side, Worsham noted.

On the supply side, cotton has become more competitive with alternative crops like corn and soybean, which he said “were almost artificially high during the mid-2000s through a couple of years ago” due to growth in ethanol demand that caused prices to spike and took farmable acres away from cotton, “so plantings were down.”

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In addition, Worsham said, “The share loss that cotton had after the price spike in 2010 that seems to be moderating and flattening out–there’s been almost no change in the past year–and with the issues related to synthetic fibers and microplastics.

“I think we’re in a good position to maintain or even grow that share going forward,” he added.

Prices

After maintaining a range between 65 cents and 69 cents per pound since early May, the New York December contract broke lower in the second week of July and fell to levels near 63 cents per pound, according to Cotton Inc.’s monthly analysis. The A Index, an average of global spot cotton prices, also declined, dropping from its range between 76 cents and 78 cents per pound to levels near 74 cents.

U.S. spot prices averaged 58.45 cents per pound for the week ending July 11, according to the U.S. Department of Agriculture (USDA). This is the lowest weekly average since April 7, 2016. The weekly average was down from 60.50 last week and from 83.34 cents a year earlier.

Of the cotton price slump, Worsham said, “The longest that could probably go would be when planting decisions come round in the first part of the calendar year next year. If those [futures] prices would continue to fall, let’s say into the 60s, then I think you would see at least a moderate reduction in cotton plantings that would tend to be bullish to price.”

In 2019-20, the U.S. is expected to grow 22.0 million bales of cotton, according to new USDA projections. Cotton Inc.’s analysis noted that with only 3.1 million bales for domestic use, “exports will need to be strong to prevent a major accumulation of stocks.”

U.S. ending stocks are already forecast to grow by more than 30 percent and that is with a projection of near-record exports. The report said, “If shipments end up being weaker than forecast, further build up in supply in the world’s largest exporter could weigh on prices globally.”

As for the bottom line on prices, Worsham said: “I would say that we’re reasonably close to the bottom. You can’t make money growing cotton at 60 to 65 cents a pound on the futures market. At some point, prices will have to rise to cover costs. Growers would consider upper 70s to 80 cents on the futures market to be not a great price, but something reasonable.”

Sustainability

A major issue for U.S. cotton is sustainability, based on its importance to the environment and the image and appeal of the fiber to manufacturers and consumers.

A comprehensive view of the subject–drilling down on problems along the supply chain from farm to shelf, and detailing advancements, methodologies and opportunities, were presented at the Cotton Sustainability Summit in San Diego in April.     

“The summit met a number of our objectives, number one being that the cotton industry is clearly taking sustainability seriously,” Worsham reflected. “And we’ve been doing that for some time.”

He noted key topics such as microplastics pollution and the impact of polyester and other synthetic fibers were important, as were discussion on the recent formation of the U.S. Cotton Protocol.

The protocol, initiated by the umbrella National Cotton Council, is a pilot program designed to confirm and increase awareness that U.S. cotton producers are farming responsibly and striving for continuous improvement.

It includes growers, ginners, merchants and marketing cooperatives that will be enlisted to assist in recruiting producer participants and in verification of information obtained through the Protocol. The confidential information collected will be reviewed continually and participating producers will be able to monitor their sustainability progress, including comparing numbers with those for their geographic region and the entire Cotton Belt.

Producers’ first step in the voluntary program is completion of a self-assessment covering nine categories: soil health, nutrient management, water management, crop protection, harvest preparation, wildlife habitat, fiber quality, traceability and farm management. Enrolled producers must agree to use the FieldPrint Calculator or other qualified data product to monitor their farm for best management practices.

The Protocol was developed to help the U.S. cotton production sector reduce its environmental footprint through specific sustainability goals targeted for 2025. They are: a 13 percent increase in productivity, an 18 percent increase in irrigation efficiency, a 39 percent reduction in greenhouse gas emissions, a 15 percent reduction in energy expenditures, a 50 percent reduction in soil loss and a 30 percent increase in soil carbon.

“We think these sustainability efforts can not only be good for the planet, but also be a competitive advantage for cotton,” Worsham said.

Market share and consumption

The edge that it can bring is at the heart of Cotton Inc.’s mission of marketing cotton for growers to brands, retailers and consumers. How to achieve that purpose has changed over the years, Worhsam and Kimberley S. Kitchings, senior vice president of consumer marketing, noted.

“Consumer marketing of cotton is more complex than ever,” Worsham said. “It’s not just about marketing taglines (like the Fabric of Our Lives), you have to have product to go with it.

“A lot of marketing today is the integration of the supply chain marketing side–the brands and retailers–and also bringing in the product development teams who are developing the fabrics and ideas for innovative cotton products,” he continued. “We have to come up with products and ideas for mills or brands and retailers to adopt technologies and finishes or finished products that are going to be what the consumer wants.”

In consumer marketing, Cotton Inc. has switched a lot of its efforts to the digital and social media side, he noted, doing a lot of partnerships and point of sale.

“We have a very diversified portfolio in consumer marketing,” Kitchings said.

She noted a program with Amazon called Cotton Style House, which after a livecast fashion show last fall, has now launched a limited-time shop where consumers can find a selection of cotton apparel curated to fit their lifestyles and occasions.

Available to shop now through Aug. 31, the Cotton Style House Collection at amazon.com/shopcotton is inspired by eight social media influencers from around the country with more than 1.5 million Instagram followers combined.

“We’re looking for any opportunity to ease the consumer journey because when he or she is looking to shop, it’s going to be very hard to find fiber content labels, along with reminding them of the natural and sustainability benefits that cotton conveys,” Kitchings said.

Plans for an upcoming marketing campaign will connect cotton to denim is a positive way, Kitchings said, and describe the comfort it brings.

Worsham noted that cotton is “still the dominant fiber in apparel and home furnishings–over 50 percent by weight.”

He said, “Post-2010, when cotton prices went sky high, you started seeing fiber substitution and saw the accelerated trend toward lighter fabrics, so the same number of clothes requires fewer bales of cotton. We lost about 8 or 10 [percentage] points of market share during that period, but that has leveled off.”

He and Kitchings also noted that there has been a lot of blending that’s been incorporated into fabrics for performance characteristics, which actually helps cotton consumption.

In the latest USDA report, global production estimates for both 2018-19 and 2019-20 increased by a little less than half a million bales. For global mill use, estimates for 2018-19 and 2019-20 were lowered.

“With production higher and consumption lower, a net effect was an increase in the estimate for global stocks,” Cotton Inc. said. “The figure for world ending stocks in 2018-19 increased 1.7 million bales to 79.3 million. That carried through to 2019-20 as an increase in beginning stocks and contributed to the 3.2 million bale upward revision to the forecast for 2019-20 ending stocks to 80.4 million. This erased the 2 million bale year-over-year reduction that was projected for 2019-20 last month and replaced it with a 1.2 million bale increase.”

“Ultimately, it’s about how much cotton is needed globally,” Worsham added. “Cotton will find its way into the market.”