Cotton industry reeling after 2020’s domino effects

Across the Southern Plains and beyond, cotton growers are preparing to harvest their fields on a year full of twists and turns no one could have predicted. Yields are expected to be low, and coupled with a number of other challenges, the cotton infrastructure of west Texas and Oklahoma could be in for a ripple effect, mimicking the trends of 2020.

“On the production side, there have been several problems in terms of just getting a crop out of the field,” said Justin Benavidez, Texas A&M Extension management economist. “We had a lot of heat, then a lot of rain that didn’t time up well with the heat, so that caused drought stress.”

Wind damage has been hard on all types of crops this year, but an early June windstorm in particular was responsible for leveling many acres of cotton. Hail has also been an issue this year, and an early cold snap in September was not good for the crop.

“The weather has also been a challenge because it has been the driest it’s been in many years,” said Carey McKinney, gin manager at Lonestar Gin in Pampa, Texas. “I don’t know how many days we’ve gone without significant rainfall, especially in western Oklahoma where they haven’t had hardly any rain at all. And we had a lot of heat and that affects the water usage of the plant. I’m sure it’s going to pull the average yield down across a lot of the cotton growing area of Oklahoma. In the Pampa area we don’t really have any dryland to speak of because of the lack of moisture.”

Additionally, the pandemic has had an interesting impact on cotton prices. Benavidez said corn, sorghum and wheat typically either go into foodstuffs or are fed to animals, so they are always in demand. However, cotton is not as much of a necessity.

“Regardless of how much money is in our pockets, or whether we’re eating at a restaurant or at home, those grain markets still have demand no matter what because people have to eat,” Benavidez explained. “Cotton typically goes into durable products like clothes, furniture and upholstery in vehicles, and those are things we don’t purchase as much when there is an uncertain economic outlook. Prices have improved from where they were at the beginning of the pandemic, but they are still facing significant headwind.”

Market disruptions and shutdowns during the pandemic echoed through each level of the cotton goods processing sector too. Many stores were forced to close, halting restocking and customer purchases. When stores began to reopen, there was lower demand and foot traffic due to COVID-19 and a limited number of people allowed in stores at a time. Transportation and shipping speed has also played a role in the ability of stores getting items on shelves. Additionally, most clothing stores have blocked off dressing rooms for fear of spreading the virus, leading fewer customers to purchase cotton clothing because they are unable to try before they buy.

Leighton Stovall, general manager at Moore County Gin in Dumas, Texas, said the cotton gin industry has also experienced some delays in the manufacturing of needed repair parts and supplies, but there has not been a significant impact thus far, especially since it has been the offseason for the gin industry. McKinney said the pandemic effected trucks coming to pick up cottonseed, but since they are an essential business it has not changed activity too much.

Cotton bales decline, gins struggle

“In the Texas High Plains and into the south Plains where there’s a lot of cotton acreage, there was about 4.25 million acres planted this last year,” Benavidez said. “So far only about 2.5 million acres are not listed as failed by the Farm Service Agency, so that means only half the original planted crop is expected to be harvested.”

Benavidez said the number of acres failed is likely to increase if the cold weather continues.

“In general, about 40% of all acres in our region have failed in terms of the cotton crop,” he continued. “Of the acres that have failed, 22% of them are irrigated and 52% of them are dryland, so that is a very large amount of cotton that’s not going to be going through gins and on into storage facilities.”

Benavidez said the regional yield for the Texas High Plains and the Southern Plains, is going to be somewhere in the neighborhood of 2.5 to 3 million bales—last year that number was about 3.9 million bales.

“It’s tough because we built all this cotton infrastructure and the last few years, the number of bales going through has declined due to weather impacts on the crop,” Benavidez said. “The previous five-year average bales ginned was about 5.3 million bales, but if you go back to 2016 or 2017, we were ginning over 6 million bales in this region.”

All the while, the costs to the ginning facilities are still accruing to the processing sectors; they still have to pay their taxes and any permanent employees, but on much lower revenue.

“Typically when there’s less of a crop and a lack of cotton bales, if anyone runs short there might be some gins combining,” said McKinney. “Just like a lot of farms, the cotton gins are just getting bigger and the little guys are having a harder time.”

Although Benavidez said he does not know of any gin closures so far, there are about 140 gins in the Texas High Plains region, and he fears gins with higher costs per bale ginned are going to start to shut down and that will allow larger gins or other entities to go in and purchase those gins and take advantage of economies of scale. Lower cost gins are going to be able to stay in business and potentially businesses could expand and consolidate. This could cause less competition and prices for cotton farms could increase and lead to localized monopolies.

“We’re aware that some gins have combined with one another down in the southern plains,” said Stovall. “Cotton is more mobile than it used to be, with round balers and modules. You can move the cotton longer distances and still get the product ginned without any major issues.”

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Mending the damage of a challenging year

In the 2020, just about every industry has had financial woes, except maybe hand sanitizer or toilet paper companies. The cotton industry needs several things to make a 180-degree pivot for a substantial improvement.

“Consumer spending is growing again, and I think that is definitely positive,” Benavidez said. “We had a record growth in unemployment over the last few months from the pandemic, so any strength we have in the economy is going to be positive for the cotton crop because the more money people have in their pockets, the more spending they’re going to do on durable goods.”

Regionally, the cotton industry has been facing an issue with less cash flowing through the economy, especially since the pandemic. Benavidez said when he examined the time period of 2013 through 2017, and the cash receipts for cotton for the region around Amarillo, Texas, came out annually to about $335 million.

“If you multiple that dollar amount so it circulates through the economy and contributes to other people as farmers go out and they eat in restaurants or watch a movie, that dollar circulates about 1.8 times, which leads to a regional economic impact of about $630 million just from cotton alone,” Benavidez said. “But on these lower yields and lower number of bales ginned, we’re only going to see about $540 million circulating throughout the economy, so that’s $90 million less of an economic impact from the cotton crop alone and that’s not including shortcoming in any of our other crops.”

When the economy will recover fully and how decreased harvestable cotton acres will effect the infrastructure of the gins in Texas and Oklahoma remains to be determined, but experts have no doubt cotton will continue to gain in popularity in the Southern Plains.

“I do still expect acreage to expand, even with some of these difficulties, because cotton takes less water and really that’s the primary driving force on a lot of decision making,” Benavidez said. “Cotton is still an alternative to some of our more water-demanding crops, like corn. We may see a slow-down in the growth of acreage, but I don’t expect cotton to stop its march north anytime soon.”

Lacey Newlin can be reached at 620-227-1871 or [email protected].