Abstract
When deciding which variety of cotton to plant, growers do so based on how that variety is expected to impact their bottom line. One of the factors determining that bottom line is the quality of the fiber. Ultimately, the “value” of quality in any given year will be reflected in the market though the price signals. Market-price data show that the differential between 31-3-35 and 41-4-34, the past decade has exhibited an increasing trend in the premium associated with 31-3-35 with particularly strong increases over the past three years.
Introduction
When deciding which variety of cotton to plant, growers do so based on how that variety is expected to impact their bottom line. Consideration must be given to expected yield, fiber quality characteristics, and how much it costs to produce the crop, and all of these factors must be evaluated in light of climate and agronomic conditions.
Most growers will tell you that yield is at the top of their list when making the variety selection. If you pencil out the numbers, we’ll generally find that a higher yielding variety with slightly lower quality characteristics provides more return than a lower yielding variety with better quality. For example, another 100 pounds of 50-cent cotton offsets the lost revenue of a 5-cent discount on 1,000 pounds.
Despite that simple example, our industry cannot lose sight of the need to produce the type of fiber that the customer wants. It is not a viable long-term strategy to mass produce cotton while ignoring the demands of the customer. One encouraging note is that new varieties released by seed companies appear to exhibit both higher yields and better quality, as opposed to what has long been believed to be a trade-off.
Advances in spinning technology have led to increased speed and greater demands on the fibers. Textile manufacturers stress the need for longer, stronger cotton with less variation in micronaire, greater uniformity in fiber length and reduced contamination. Of course, the first question from the growers is “How much are you willing to pay for these quality improvements?”
Market Signals
Ultimately, the “value” of quality in any given year will be reflected in the market though the price signals. That value will reflect the customers’ willingness to pay for quality characteristics in light of the availability of cotton with those particular traits. Growers must be mindful of the premiums and discounts offered by the market because they have a direct impact on the price received and could be the difference between profit and loss.
I want to spend just a few minutes looking at recent trends in market signals for different quality traits. First, looking at the differential between 31-3-35 and 41-4-34, the past decade has exhibited an increasing trend in the premium associated with 31-3-35 with particularly strong increases over the past three years. I would point out that the data represent market-year averages with the ’04 year-to-date data reflecting the August-November average. In the first four months of the marketing year, the premium above the 41-4-34 base is a full 5 cents per pound.
Obviously, 31-3-35 reflects the combination of several different quality traits relative to the base. It is also interesting to look at the trends in the individual components of this comparison. Market-price data indicate that the premium associated with a 35 staple length vs. a 34 staple length has increased from 40 points in 1994 to about 150 points in recent years. The premium associated with a leaf grade of 3 has increased from 0 up to 100 points. Finally, the color premium has fluctuated over the past decade with little in the way of a discernible trend.
Relative to the base grade of cotton, it has generally been the case that discounts are larger in absolute value than the premiums. For example, the premium associated with 31-4-34 has generally ranged between 50 and 100 points, while the discount on 51-4-34 has moved between 200 and 400 points. In the case of leaf, a 3-leaf now has a premium of 100 points while the discount associated with a 5-leaf is just under 200 points.
However, the relationships between premiums and discounts have changed over time. Specifically, the difference between the absolute values has dropped. This is particularly evident in the comparison of 33 staple length and 35 staple length. In 1994, the premium associated with a 35 staple length was about 40 points, while the discount of a 33 was just over 200 points. For the ’04 marketing year, a 35 commands a premium of almost 150 points, and the discount associated with a 33 has dropped to 133 points.
Looking at micronaire, there is no discernible trend over the past decade, but it continues to be the case that significant discounts occur with mike above 5.0 and below 3.0.
Conclusion
Lint quality matters to the customer, it matters in the marketplace, and it matters to the bottom line of the grower. As I mentioned earlier, it can be the difference between a profit and a loss. Variety selection is just the first decision a producer makes that determines quality. Numerous opportunities to enhance, maintain, or reduce fiber quality occur throughout the growing season, at harvest time, and during ginning.
