It is time to give U.S. cotton customers what they want. And in order to do that, some fundamental changes to the U.S. cotton industry must occur.
That was the main message from Joe Nicosia to attendees of his talk at the Memphis Farm and Gin Show in early March. Nicosia, senior head of the cotton and merchandising platforms for Louis Dreyfus Commodities and vice president of Louis Dreyfus Commodities LLC, worked the crowd with an evangelistic zeal.
“Everyone is interested in the future. … (The USDA’s) 10-year projection for cotton exports will be 58 million bales. That’s a 20 million-bale increase in exports for the world. You want to be in that business? Heck, yeah!”
There’s one thing that must be done. “We have to skate past the competition. It won’t be easy.”
Nicosia then dropped some unwelcome news. The USDA “also came out with a 10-year projection for U.S. exports. Ten years from now” exports are projected to go from slightly over 14 million bales to “15.4 million. So, we’re going up about half a million. And the rest of the world is going up 20 million? Wow. That is your future, according to your government.”
Who’s going to take the biggest share of that 20 million? “Australia, India, west Africa. Everyone one of their market shares is going up. What do you think that means to their growers, their price, their profitability, their future?”
A great company
So what to do?
Nicosia asked the crowd how a great company would tackle the challenge and presented a list of things that would be needed.
- Forward vision/strategy.
- R and D.
- Cutting-edge technology.
- State of the art manufacturing.
- Excellent product.
- Demand for product.
- Sales force.
- Credit department.
- Customer service.
- Quality control.
- Warehousing and distribution.
- Ability to execute your plan.
“We’re lucky. We have each other. We have something called the United States cotton industry. All of the segments are in the business together. … Although, we perform different function, we perform like a single great company, together.”
Taking the great company analogy further, Nicosia asked how it would react if the “marketing team, its sales force, its customer service department and its logistics and execution team told you that your product had the worst delivery in the world? How does that make you feel? That is the case today. … We have the worst delivery in the world, and I’m going to prove it to you.”
The “sub-optimal performance of any one of the segments negatively affects all of us. U.S. cotton that can’t be shipped, can’t compete with foreign growths in the world. We currently have to switch business to Australia, Brazil and west Africa because we can’t get U.S. cotton out of the United States.”
Further, “the ability to execute delivery in the time frame needed often determines what somebody buys. Today, the bottleneck often occurs at the warehouse level. Warehouses are complaining today. They say, ‘We have all these bales ready and they aren’t getting picked up.’ That’s because we also have a trucking shortage today. We do have a problem because we can’t pick up the bales fast enough.”
But the trucking problem, Nicosia said, is a more recent one while the larger issue of slow shipments “has been a problem for years. And we need to solve it now.”
Internal data gathered at the end of January backed up Nicosia’s point. “What about warehouses we’re shipping cotton out of? These are the delays. We had more than 70 percent of delays in the Delta of more than 30 days. In the Southeast in January, it was over 55 percent. The Southwest was at over 70 percent.”
Customers “are waiting way too long for our product. They’re standing in line. But they won’t stand in line forever. They’ll go somewhere else.”
If the National Cotton Council balance sheet is right, “we’d better get on board and get on board quick.” The NCC deserves credit for a new cotton “program for 2018 and kudos for them because it was a lot of work. But (the NCC is also projecting) a 7 million bale carryout. Can you imagine what that could be to the U.S. government? That won’t go down really well.”
Shipment timings must be better, tighter. “We begin harvest in August in Texas. But when we look at it, our September to December shipments are about 20 percent of our annual. But our January/April (shipments) are around 48 percent. We ship more cotton in the January/April period than we do early in the season. It isn’t because we don’t have cotton — we have millions (of bales) we just don’t ship it.”
Nicosia shifted to a comparison between Indian and U.S. cotton. “Who has better technology? Who has better infrastructure?” India’s shipments “peak in December, sometimes November. From November through January, India ships almost all its cotton…
“Guess who harvests first? The United States. … India’s cotton comes into stock and it goes. The worst part of this is when you won’t ship and India is shipping, the prices are at the highest. We’ve checked out of that business because we won’t ship it! You’re giving them market share at a high price, and you’re giving it to them because you won’t demand your product is shipped.”
And it’s getting worse. “We’re shipping less and less early in the year to hold that stuff in the warehouse to earn revenue which causes our cotton to be worth less.”
The need to address the U.S. shipping woes is paramount, “because we have a wave of demand coming.”
The record for shipping cotton for two consecutive years was set in 2004-05. “We shipped 32 million bales. … The NCC says this year and next year, we’ll ship an estimated 23.9 million bales. The USDA is slightly more positive at 30.5 million.”
Nicosia then picked up the pompoms. “I think exports are at 16.4 million (bales) this year, not 14.5 million. I can’t tell you how much cotton we’re shipping, how much demand we have, how many people we’re bringing in, how many trucks I can’t find.” Regardless, “I’m going to ship your cotton and I’m going to ship a lot of it. And other companies and cooperatives are doing the same. I think the government (export estimate) is way low. The only reason we couldn’t make (16.4 million) is if we can’t get the trucks and the warehouses to cooperate. Your producers are doing their job, the sales force is doing the job, the marketing teams are doing the job.”
And for the 2018-19 season, “it’s only getting better. I think (exports) will be 17.1 million bales, not 14.1 million. That some good news!”
And if Nicosia’s prediction plays out, the export figure for the next two years is “33.5 million bales. We’re going to break the record.”