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Changing China policy bad; NAFTA good for industry

Greenwood co-op has been a staple of cotton farmers for more than 75 years

greenwood — The president of the largest and oldest cotton farmers’ cooperative in the state said the North American Free Trade Agreement continues to be good for America’s cotton farmers.

That’s good, because other factors such as the glut of cotton on the market caused by China raiding their reserves, and the continued effects on cotton planting caused by the 1996 Farm Bill, aren’t too positive for farmers, said Woods Eastland, president of Greenwood-based Staplcotn.

But while it’s still anyone’s guess whether China will add to the 100 million bales it dumped on the market in April that drove prices down and pushed anxiety up, Eastland said the ill effects of the 1996 legislation that ultimately led many farmers to dramatically reduce their cotton acreage, is finally winding down. And not a moment too soon, he said.

“It’s been painful,” Eastland said. “The farmers have suffered through low prices and only the most profitable acres are now in production.”

Over the last three years Eastland said the total amount of cotton acreage planted has dropped about 25%, down more than 3.1 million acres since 1995, with more than 58% of the decrease occurring in the Mid-South and Southeast. In Mississippi alone, cotton farm land dropped 340,000 acres, with farmers primarily switching to corn. But at the same time the amount of acreage under contract with Staplcotn has remained relatively constant, thus improving the co-op’s position in the marketplace, Eastland said.

Formed in 1921 by Greenwood cotton producer Oscar Bledsoe and 10 Delta planters, Staple Cotton Cooperative Association was the first cotton marketing cooperative in America and was organized for the marketing of Memphis territory cotton. It represented some 1,800 cotton producers when first began. Today, more than 2,700 cotton producers across the Southeast make up the Staplcotn cooperative who market just under 2 million bales per year.

Two significant features have been added to the cooperative since its formation: Staple Cotton Discount Corporation, or Stapldiscount, which was created in 1923; and Staplcotn’s warehouse division, which was created in 1965.

As a company promotional video notes, Stapldiscount was “an idea ahead of its time” and was created three years before the National Farm Credit Act to provide much needed credit for agricultural producers. Today, Stapldiscount provides low-interest financing for crop and catfish production, equipment, buildings, grain storage, seed processors, land purchases and more.

Eastland said the average daily balance of Stapldiscount now hovers at around $50 million, although that is down from nearly $61.6 million in 1996 as a result of the decreased capital needs of farmers planting less cotton.

Operated extremely conservatively, Eastland said the key to the program is offering low interest rates to only the best borrowers. “Our market niche is to be the blue ribbon lender to the blue ribbon borrower,” he said, adding the result has been not having a single write off in eight years. “Of course that’s going to change sometime in the future.”

Another significant operation of Staplcotn is its warehousing operations, which were begun in 1965 when the co-op built space with a storage capacity of 145,000 bales in Rising Sun. Since then that facility has been expanded and can now store over 300,000 bales. Additional warehouse space has been added in Itta Bena, West Memphis and Hollandale and Rolling Fork. Combined, Eastland said Staplcotn has the capability to warehouse more than 800,000 bales of cotton.

Because each of the three areas are wholly-owned independent subsidiaries — Staplcotn, Stapldiscount and the Warehouse Division — cotton producers do not need to be a member of the co-op to take advantage of the services of the warehousing or financial services, Eastland said, although with the warehouse fully 75% of the capacity is used by members.

Warehousing cotton is essential in an industry that uses it year-round but where its harvested only two months out of the year. Eastland said warehoused cotton is used within a five month period.

Storing cotton also allows farmers to pick and choose the most appropriate time to sell. This year it doesn’t look that good, Eastland said. “There is no sense in harping on the obvious — that cotton producers are in dire straits for the ‘98 crop,” Eastland wrote in an April 20 memorandum following a USDA acreage estimate that more cotton was being planted than anticipated and China was exporting nearly 1 million bales of cotton.

While the market has been up and down for cotton farmers driven by world conditions, Eastland said China’s earlier policy of importing more than needed, and fallout from NAFTA had been two bright spots for the cotton industry. Now that the Chinese policy has shifted from importing to exporting mode, trade with Mexico will become increasingly necessary.

The elimination of tariffs between Mexico and Canada created by NAFTA dramatically shifted much of the clothing textile industries cutting and sewing operations from Asia to Mexico. As a result, cotton consumption in Mexican mills increased from 800,000 bales in 1994 to nearly 1.8 million bales last year. Overall, the U.S. exports five million bales of cotton to Mexico and Canada, and is those countries primary supplier. Their importance to the cotton industry, Eastland said, will only increase.

In his 1997 annual report, Eastland summed it up in one sentence: “NAFTA is turning out well for the U.S. cotton producer.”

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