Market highs not measure of success

Marketing success doesn't necessarily hinge on hitting the highs. The more practical approach is to have a reasonable marketing goal and a general understanding of where the market is headed, according to ginner and cotton/grain farmer Larry McClendon, Marianna, Ark.

McClendon, speaking at Ag Market Outlook conference in Memphis recently, says the latter begins by grasping the larger influences on the market. As most people know, China is one huge one, but the other is right around the corner from where you live.

“We have seen discount retailers like K-Mart, Wal-Mart and Costco revolutionize the markets in our nation,” McClendon said. “Years ago, manufacturers built a product, added their costs, a profit margin and offered these products in the marketplace. That was the way we did business for 100s of years.

“Today the discount retailers basically own the manufacturers. When the supplier won't supply the retailer products they want at the price they want, they just change suppliers.”

The result, “Today, a pair of blue jeans at Wal-Mart is $9 a pair cheaper than it was 10 years ago. These are wonderful things for 90 percent of the people who buy blue jeans. But it's a very disruptive thing if you're the 10 percent who are in a retail business trying to compete in this environment.”

McClendon points out that China “is doing to the world market just what the discount retailers have done in the U.S. markets. They're coming into the marketplace with a product that is so much cheaper than anybody else's, and it's absolutely disruptive to entire nations.

“China is putting all of the developing countries out of the textile business,” McClendon said. “And not everything that China does makes economic sense. Sometimes they are retailing yarns and spun fabrics cheaper than what they paid for cotton.

“But we can't discount them. Their economy is growing at 7 to 8 percent a year. If they choose to be the biggest textile industry in the world, there is no one who can stop them, at any cost, at any price.”

Marketers also need to follow the development of Brazil's complaint against the U.S. cotton program, which is expected to be resolved by a WTO committee in May. “In the United States, we might expect that the matter will be resolved pragmatically, but in a world court, who's to say how things will come out?”

Closer to home, budget constraints in the United States are putting the U.S. agricultural sector under political pressure. “Sen. Charles Grassley is waiting for the opportunity to undo our subsidies. And the New York Times never misses an opportunity to jab at us.

“Collectively, those things are going to keep pressure on prices, McClendon said. “I'm not necessarily negative. But the prices we've had the past few months are opportunities. I'm selling my new crop. I've sold my old crop. That's how I'm handling it, but how you handle it is up to you.”

McClendon doesn't have the time to keep up with every little tick of the market, preferring to market his cotton through Staplcotn.

This gives McClendon the freedom to trade options when he sees attractive levels. “My goal is to add 2 to 4 cents per pound to my cotton price. You don't have those opportunities each year.

“I don't know if anyone has enough money to trade futures positions and hold on to it,” McClendon added. “We saw cotton fall 8 cents in three days this year. You have to be pretty salty to hang onto a position like that.”

McClendon is especially concerned about U.S. cotton's increasing dependence on the export market. “In five years, we have gone from consuming two-thirds of our cotton here and exporting one-third to consuming one-third and exporting two-thirds. We're dependent on these exports to bail us out right now.

“But within every country that we sell to, there is an inherent desire in that country to be self-sufficient in food and clothing. In the back of their minds they are saying, ‘I'm going to buy this cotton today, but in two to three years, we're not going to be doing this.”

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