But the country’s cotton industry is starting to deal with an international trade problem created by the volatile market: cotton contract forfeitures, said Isle of Wight County cotton farmer Cecil Byrum. That means the United States is seeing a spike in the number of international textile mills defaulting on cotton deals brokered when prices were at record highs, he said.
“It’s the biggest single problem facing the cotton industry today,” said Byrum. He and son, Steele Byrum, cut their cotton acreage on their Windsor farm by 25 percent, to 1,000 acres this year.
“Companies that booked at the higher prices are trying to walk away from the contracts,” Byrum said. “When you get into international trade law, it’s a different set of rules.”
Cotton is big business in the United States, the world’s top cotton exporter. American growers sold 11.7 million 480-pound bales on the global market in 2011, generating $7.26 billion, according to the U.S. Department of Agriculture. That’s nearly double the $3.79 billion generated in 2009.
Cotton contracts worth nearly $1 billion, covering sales of more than four million bales, are either in default or are at risk of default with little sign of resolution, according to the Memphis-based National Cotton Council.
Textile mills from several countries, including Bangladesh, Indonesia, Thailand and Vietnam, have defaulted on raw cotton contracts, causing severe economic losses for U.S. cotton merchants and marketing cooperatives, said Ricky Clarke, chairman of the American Cotton Shippers Association which is also based in Memphis.
The bulk of the country’s exported fiber went to China, the world’s largest cotton-producing country with 33.1 million bales.
Global events, including flooding and a drought that severely damaged cotton crops in Pakistan and China respectively in 2011, took a bite out of the world’s stockpile of stored cotton, said Spencer Neale, a commodities specialist with the Virginia Farm Bureau Federation.
The surging demand for cotton from developing countries, particularly India and China, drive cotton prices in the global marketplace, said Byrum. Both countries have growing numbers of textile mills and in China’s case, a growing middle class population with more excess money than previous generations, he said
“China controls the market and the demand from that country sets our prices,” said Isle of Wight cotton farmer Jimmy Oliver. “China is good to American farmers.”
Agriculture is the commonwealth’s largest industry, with an annual impact of $55 billion, according to state agriculture figures. Of that, cotton contributed $48 million in 2011 and is on track to generate $62 million in 2012, said Gail Milteer, sales and market development specialist with the Virginia Department of Agriculture and Consumer Services.
More than 75 percent of Virginia’s cotton crop is exported, China, Vietnam, Mexico and Pakistan are among the top buyers of the cotton lint, Milteer said. Korea and Saudi Arabia buy the bulk of the exported seed to use for livestock feed, she said.