Low Commodity Prices Hurt More Than Farmers in Rural Georgia

Of much discussion over the last couple of months have been low commodity prices. When prices tend to drop below or hover at the cost of production, everyone in agriculture speculates on what farmers will grow to maintain profitability at their operations. In Georgia the debate is typically how many acres of cotton and peanuts will be grown and how will change the market and will it affect farmers and their families livelihoods. What is never discussed is what about everyone else in rural Georgia.

I think most people can draw the quick conclusion that if farmers are looking at a tough year then the tractor dealerships and supply companies may not sell as much to the farmer. But, what is not discussed is all of the other businesses that interact with farmers who many also suffer when the farming community suffers. Take a car/truck dealership for example. Farming is pretty rough on a truck and it seems that most farmers trucks are wore out and replaced within 4 or 5 years. If things don’t change going into the 2015 crop season I doubt very many farmers will buy trucks in 2015. And for many rural dealerships, particularly in South GA, this could mean a serious drop in sales compared to 2014. What about small town furniture stores? Although farmers only make up 2% of the total population, they are a significantly higher portion of rural populations. Furniture, like vehicles, are ‘big ticket’ items that are purchased in less frequency than items like food and clothing. This drop in farmer income will also trickle down into these small furniture stores that may have a large farmer customer base (although this purchase is more personal than business related it is still affected). I could go on and on, but just think of any ‘big ticket’ item and think about how that retailer may be hurt when their sales decline just as farmers incomes/profitability decline in 2015.

And you can’t discuss farm income declines without mentioning the potential decline this will have in tax revenues for a heavy ag county. It is expected that farmland values in Georgia will slightly decline as the value of crops grown on that land decline. A decline in land value will decline the land tax revenue for a county. With less ‘big ticket’ purchases like equipment and vehicles, the sales tax revenues for an ag county will also decline. When these rural ag counties are faced with these declines in tax revenues they are faced with some very tough choices on how to cut back on county spending or raise taxes. Neither situation is good for the county resident.

So next time you read a headline saying something like “Georgia Farmers Suffer in 2015”, think of all of the other folks in rural Georgia who depend on the business of farmers and remember that they suffer too.

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Meeting Season Begins

This week kicked off the county production meetings. These meetings are held in almost every cotton growing county around the state. Some of the smaller counties will combine to have a single meeting and most of the counties that grow cotton in north Georgia will combine to have just a few meetings. These meetings are conducted by the UGA Cotton Team and typically 50% sponsored by growers dollars through the Cotton Commission. Meeting topics are usually about variety performance, insect pest management, soil fertility, etc. Our quick presentation to the producers is usually just to update them on the Commission’s activities since last year and tell them about any new things the Commission is doing. One thing that has gotten a good reaction is the Commission’ new promotional video broadcast on GPB during high school football and basketball games. We’ve shown the video to several difference audiences outside of production meetings and it has been well received there as well.

One thing on everyone’s mind this week at the production meetings has been the price of cotton. The near futures contract has dropped down just under 60 cents. This doesn’t add many smiles to producers faces when you ask about how things are going. Lots of folks are still holding 2014 cotton and really don’t want sell it at 59.5 cents. The 2015 new crop futures (Dec15) is still under 70 cents, the generally held break-even price in Georgia. So this is very concerning to producers going into this crop year, not to mention having to worry about when or how to sell the 2014 crop.

One bright spot has been the price premium we’ve heard several folks talk about when they sold their 2014 crop. It appears that high quality cotton is still in good demand. Most indications are that all of the cotton reserves the Chinese government are selling to their local mills are of very low quality. This is partly because some of that cotton is 4+ years old. Some growers have gotten at or around a 5 cent premium for good high quality cotton. So at 60 cent, you may get 65 cents and then add in the LDP (which has been anywhere from 3-5 cents depending on when it was triggered) and some folks have gotten 70 cents total this year. If the Dec15 contract inches up towards 70 cents, and all indications are that it should be close to 70 by expiration in December of this year, and you add a couple penny premium, then things won’t be that bad. But, with any market, things could go south in a hurry, like we saw this summer with prices. Hopefully everyone will keep their heads up and look forward to a very productive year.

2015 Opportunities and Challenges for Georgia Cotton Industry

Happy New Year! Hopefully everyone has had a great start to the new year. It seems that most gins started off the new year by finishing up on ginning the 2014 crop. Verbal reports indicate that most of the gins in South GA will finish up sometime in mid-January. For the cotton producer, the new year should bring a new and refreshed look at the upcoming season. Hopefully we can highlight some of the opportunities and challenges of the upcoming cotton season in Georgia.

The first challenge that everyone is talking about is the current market and cotton prices. Futures prices for the new crop (Dec15) continue to be in the low .60s. Most producers and university budgets say that to break even you need about .70/lb. Given all of the current market information, it doesn’t appear that we will see cotton in the .70+ range anytime soon. With the current bales in storage worldwide topping 100 million, there is just too much cotton out there for the market to dramatically change from the way it is now. With China holding roughly 60% of the world’s cotton and announcing that it will still make very hefty subsidies (about $1.40/lb) to growers in the western region and smaller payments (about 14cent/lb) to growers in some eastern regions, the market has no reason to push cotton prices up.

On the flip side, high quality cotton is still in good demand. The market knows that there is an entire years worth of world cotton use in storage now, but growers in Georgia have found that high quality cotton can be sold at 5cent+ above basis in some cases. This indicates that the market is seeing lots of poorer quality cotton, most likely cotton from Chinese storage, new crop cotton from India, and new crop cotton from Africa (which has been known to be high in contamination). We’ve heard from several growers in the last week or two who were able to get .70/lb once they include their LDP and positive basis. Looking forward to the 2015 crop, it appears that there will be a demand for high quality cotton from the Southeast and that a strong positive basis situation is possible.

Another challenge this year will be one that is faced every year; the weather. The 2014 crop was a bit late getting planted because it was too wet. Then it turned off too dry in most parts of the state. Then it started raining just as harvest was in full swing. The late rain during harvest season really hurt the quality of some producers cotton and seems to have downgraded the overall quality of the 2014 crop. We have been blessed in GA not to have a hurricane wipe out the crop in recent years. One of our biggest fears is a category 3 or 4 hurricane coming through just as harvest begins and wiping out a good portion of the crop. Combine that with a potential .60-.65 cent crop and you have a disaster.

Now for some new opportunities in 2015. By now everyone has heard on the news that the USA and Cuba have relaxed some of the embargo rules applied back in the 1960s. Whether you agree with the manner in which it was done, or the political reasons behind it, you cannot overlook the potential market that Cuba possess for US goods, especially cotton. The US already ships a little cotton to Cuba but now has the potential to ship a lot more. I don’t expect a rapid rise in exports immediately, but 5 years from now we may be exporting substantially more cotton to Cuba. The opportunity to start spinning and textile mills in Cuba will not be ignored by foreign investors and I believe Cuba could see a rise in yarn and textile exports within 10 years. Since GA has one of the closest ports to Cuba, and since the Port of Savannah already exports 86% of the entire Southeastern cotton crop, I think we will see Cuba become a larger and larger cotton buyer as the years go on.

Another great opportunity that I think most people in the cotton industry are ignoring is the start up of a new spinning mill and a new gin in Georgia. In late 2013 an Indian based company announced it was planning to build a yarn spinning mill near Savannah. This is a huge opportunity for the Georgia grower to sell more cotton locally and potentially get a better price. Ground breaking on the new facility was this past summer and no one knows exactly when they will start receiving cotton, but the fact that there will be a new spinning mill in the future is exciting. Also, BCT Gin cut the ribbon on their newest gin last week, which is the newest gin in Georgia. Their new gin is located next to their current gin and HQ in Quitman (Brooks County). Now BCT will operate 3 gins, two 3-stand gins in Quitman, and one 2-stand gin in Berlin (Colquitt County). This is great news for the industry. With this new gin, and the new spinning mill coming in the future, Georgia growers know that there has been a huge financial investment in the cotton industry and that the industry is here to stay.