Cotton

SIC 0131

Companies in this industry

Industry report:

This industry classification includes establishments primarily engaged in the production of cotton and cottonseed.

Industry Snapshot

U.S. farmers' cotton production was approximately 12.2 million 480 pound bales in 2009, with about 9.2 million acres planted and 7.5 million acres harvested. This production was a sharp decline from 2007, when 19.2 million bales were produced from 10.5 million harvested acres, and 2006, when 21.5 million bales were produced from 12.7 million harvested acres. Other components critical to cotton farming include whole cottonseed and cottonseed meal, which is used to make feed for livestock, dairy cattle, and poultry. Approximately 64 percent of the cotton crop goes to making apparel, 28 percent to making home furnishings and 8 percent to making industrial products such as cottonseed oil used in margarine and salad dressing. Although China and India produce more cotton, the United States is the world's largest exporter of cotton, shipping 12.5 million bales of cotton in 2009.

Seventeen U.S. states provide the U.S. cotton supply. Texas was, by far, the largest cotton producer in 2009, accounting for over 40 percent of U.S. production, followed by Georgia (15%) and Arkansas (8%). Other top cotton-producing states included California.

The 2007 Census of Agriculture, which is updated every five years by the U.S. Census Bureau, reported an estimated 18,591 cotton farms, down from the 2002 total of 24,805. The number of acres harvested shrank from about 10.5 million to 7.5 million, as did the number of bales from 19.2 million bales in 2002 to 12.8 million bales in 2007. The U.S. Department of Agriculture also reported that the total value of production in the U.S. cotton industry in 2008 equaled $3.5 billion, as compared to $5.6 billion the previous year. Yields also fell, from 879 pounds per acre in 2007 to 813 pounds per acre in 2008. Yields fell again to 767 pounds per acre in 2009, the lowest since 2003.

Background and Development

The earliest records of domesticated cotton, or gossypium, date back to 5000 B.C., and traces of cotton processed into cloth have been found in Peru with the estimated date of 2500 B.C. Since the eighteenth century, the United States has been a leading producer of cotton. Virginia colonists grew and exported small amounts of cotton beginning with the founding of the colony in 1607, using imported seed from the West Indies. However, it was the invention of Eli Whitney's cotton gin in 1793 that allowed cotton to become a major component of the U.S. economy. According to Harold Woodman, author of King Cotton and His Retainers, exports of cotton increased from 500,000 pounds in 1793 to more than 90 million pounds in 1810. In the three decades preceding the U.S. Civil War, cotton production accounted for more than half of the nation's exports. Spurred by continuing worldwide demand, U.S. cotton production and acres planted grew steadily until peaking in 1925, when 45 million acres of U.S. soil were planted with cotton. By the early 1990s, U.S. mills annually processed some 4 billion pounds of cotton.

Two kinds of cotton are grown in the United States: American upland cotton, which accounts for 97 percent of production, and Amer-Pima, which accounts for the remaining 3 percent. Cottonseed is mechanically planted between March and June and harvested between August and December, usually before the first frost. The cotton plant grows three to six feet tall and has broad bushy leaves and a stalk that measures up to an inch in diameter. After flowering, the cotton plant produces a boll, which contains the seeds and fiber that are eventually harvested. Cotton bolls are mechanically harvested after the plants have been defoliated, either by frost or by application of chemicals. The harvested bolls are cleaned, ginned (a process that strips the fibers from the seeds), packed into bales weighing approximately 500 pounds, and classified according to staple (fiber) length, grade, and character before being taken to market. The longest cotton fibers are processed into yarns for making fabrics, while the shorter fibers, called linters, are used as a source of cellulose for industrial applications. The seeds are processed into cottonseed oil, while the seed husks are used as a feed for livestock.

The mechanization of cultivation and harvesting led to dramatic changes in the U.S. cotton industry. In the early 1950s, only 18 percent of U.S. cotton was harvested by machine, but by 1967, that figure jumped to 95 percent as productivity increased with mechanization. As a result, total acreage devoted to cotton production dropped 75 percent between the 1920s and the 1990s, while annual production stabilized at approximately 16 million bales. U.S. cotton growers produced close to 20 percent of the world's cotton supply throughout the 1980s, and approximately half of their annual production during that time was exported.

Because cotton requires warm conditions for germination and growth, it has always been grown in the southern regions of the United States from Virginia to California. For three centuries, U.S. cotton production was centered in the area stretching from the Atlantic coast west to central Texas. However, the increasing availability of irrigation facilities allowed western growers to produce cotton that was more consistent in color and weight. By 1995, the largest producers of cotton were Texas and California with respective annual harvests of about 4.5 million bales and 2.5 million bales. Although California growers planted approximately one-quarter the number of acres as Texas growers, their yield per acre was often triple that of Texas growers. However, as Texas continued to lead with annual production increasing to 5.8 million bales in 2006, California dipped to fifth in the country with only 1.5 million bales. In 2008, Texas produced 4.6 million bales as compared to California's 785,000.

The emergence of the manufactured fiber market in the mid-1970s represented the greatest challenge to cotton's dominance of the world fiber market. According to The Economist, the introduction of fibers such as polyester caused cotton's share of the clothing market to fall from 50 percent in 1970 to 34 percent in 1975. The cotton industry responded to this challenge by forming Cotton Inc., a promotional organization funded by voluntary levies paid by cotton growers. During the 1980s and 1990s, cotton began to reclaim the fiber and lint market, and it eventually recaptured 50 percent of the U.S. retail clothing market, which was indicative of Cotton Inc.'s worldwide success.

Though the cotton industry was stabilized by U.S. government subsidies and price supports that eased the pressures of a volatile world cotton market, Congress passed the 1996 Freedom to Farm Bill in an attempt to bring about a new era of market-dependent farming. The bill called for a freeze and subsequent incremental reduction of farm subsidies over a seven year period, ending those subsidies completely in 2002. However, the Farm Security and Rural Investment Act of 2002, which is referred to as the 2002 Farm Act, reversed conditions with a return to higher levels of government support for farmers.

The 2002 Farm Act affected the industry for six years, providing higher levels of support for farmers. Among other provisions, the legislation introduced countercyclical farm income support, expanded conservation land retirement programs, relaxed rules to make more borrowers eligible for federal farm credit assistance, and introduced a section on animal welfare. Despite some criticism, as a direct result of the 2002 Farm Act, many sectors within the agricultural industry benefited from higher levels of support for export programs. The 2002 legislation expired in 2007 and was replaced by the Food, Conservation, and Energy Act of 2008, which was passed by an override of a presidential veto in May. According to a June 2008 CQ Today article, "In addition to reauthorizing crop subsidies, the new farm law tightens income eligibility limits for payments, boosts funding for food stamps, expands conservation programs, and offers new incentives for alternative energy."

Like others in the agricultural industry, cotton producers faced pressure to implement more environmentally friendly production techniques. Retailers and manufacturers such as Esprit, O Wear, Eco Sport, and GAP called for an increased supply of organic cotton and began to market organic cotton products. In the 1980s, the United States accounted for only 3 percent of the world's farmland but almost 25 percent of the world's pesticide use. By 1997, the amount of overall pesticide used in the United States was down to 10 percent of worldwide usage. In 2003, 55 million pounds of pesticides were used on 12.8 million acres of cotton, putting cotton third in the nation for the amount of pesticides used.

Because organic cotton cost up to three times as much to produce as traditional cotton, customers buying the clothes manufactured with pure organic cotton were not pleased with the prices. After spiking to more than 25,000 acres in 1995, organic cotton farming dropped to 10,000 acres in 1996. Following this rise and fall, retailers and manufacturers introduced blended cotton clothing, which allowed customers the benefit of organic cotton while keeping the prices down. According to the Organic Trade Association's 1997-98 survey, more than 4 million pounds of organic cotton were grown in Arizona, California, Missouri, New Mexico, and Texas. Additionally, in 1997 Ecomall.com revealed that more than 1 million pounds of organic cotton were purchased by Levi's, the world's largest apparel user of cotton. In 2005, certified organic cotton crops were planted on 6,577 acres within the country and accounted for sales of $275 million, representing a 55 percent increase from 2001 ($86 million) with Nike as the worldwide leader in organic cotton use. By 2009, sales of organic cotton in the United States had grown to $3.2 billon, according to Organic Exchange, a nonprofit organization. Retailers in the top ten for using organic cotton brands included Wal-Mart, C&A, Nike, H&M, and Zara.

Most figures in the U.S. cotton industry were dropping as the first decade of the twenty-first century neared a close. Production, yield, and acreage planted and harvested showed decreases in 2007 and again in 2008. For example, whereas production reached 5.6 million bales in 2007, the U.S. cotton industry produced only 3.5 million bales the following year. In addition, the total number of acres harvested dropped from 10.5 million acres to 7.5 million acres. In January 2009, Mark Lange, president and CEO of the National Cotton Council, told Delta Farm Press, "It's clear that the U.S. cotton industry is depressed. We've lost acreage and the domestic textile industry has been decimated. We've changed to an export industry."

Some industry experts pointed to cost increases as part of the reason for the decrease in cotton production. From 2003 to 2007, costs increased 33 percent Beltwide, and 25 percent in the Mississippi Portal alone. Seed expense increased 50 to 100 percent, while chemical costs remained stable. However, Kelly Bryant, director of the University of Arkansas Southeast Research and Extension Center, said farmers can make more per acre with cotton than other crops. Crop planting budgets estimated by the university predicted that in 2009, cotton would produce gross returns of $660 per acre, whereas corn would bring only $595 and wheat and soybeans only $490.

Like many other crops, much of the cotton grown in the United States in the late years of the first decade of the 2000s was genetically engineered (GE). In fact, 86 percent of all cotton planted in 2008 in the United States was engineered to be insect-resistant, herbicide-resistant, or of the stacked gene variety. Interestingly, only 70 percent of the cotton crop in California and 78 percent in Texas was GE, whereas most other states used between 95 and 98 percent GE cotton.

Current Conditions

After bumper crops in the mid-years of the first decade of the 2000s (reaching 23.3 million bales in 2005), production amounts declined rapidly during the second half of the decade, and production was not expected to increase dramatically in 2010. In addition, by the early 2010s, the cotton industry had, in fact, become a new industry, compared to the industry of 50 years before and even five years before. No longer did the United States have a viable textile industry and thus, no longer did U.S. textile producers have need for cotton. As a result, cotton producers began to export their product at increasing rates. For example, in 1997 U.S. cotton producers supplied the domestic textile industry with 11.3 million bales of cotton and exported 7.5 million bales. In 2008, the U.S. textile industry required just 3.6 million bales, and thus, cotton suppliers exported 13.3 million bales. However, even traditional trading partners, such as the European Union, were losing their textile base. Consequently, U.S. cotton producers sought out new trading avenues, namely China.

China is, by far, the world's largest consumer of cotton. In 2010, China produced 33 million bales of cotton and imported another 11.5 million bales. However, U.S. cotton suppliers face challenges as they work to provide high quality cotton to meet the needs of the global community. A particular threat comes from continuing advances in synthetic fibers. Michael Watson, vice-president of fiber competition for Cotton Incorporated told Southeast Farm Press, "Their advantage is that it takes less acreage to produce (synthetic fabrics) than cotton. No plants are left in the United States, but are set up in Asia and they are in the labs trying to develop more cotton-like fabrics. They get closer every year so we can't let up on quality."

However, reports from mid-2010 were positive from Texas, the main cotton producing state. According to Jay Yates, a risk management specialist for Texas AgriLife Extension Service, as reported in Delta Farm Press in June 2010, Texas cotton farmers planted 98 percent of intended cotton by early June, with 96 percent of those plantings listed as in excellent to fair quality; only 4 percent was listed as poor and none was listed as very poor quality. According to Yates, unlike 2009, abandonment in the dryland crop was approximately 40 percent to 50 percent, and that unless a severe weather event intervenes (such as hail), abandonment could be as low as 3 percent for 2010. The USDA projected the 2010 cotton crop to be 16.7 million bales, up from 12.2 million bales in 2009. In addition, due to low carryovers from previous years and increased global demand, export markets were looking favorable for U.S. cotton producers.

America and the World

The United States dropped from second place to third among leading cotton-producing countries in the late years of the first decade of the 2000s. China continued to hold the lead, and India pulled ahead of the United States in production. Pakistan and Brazil held the positions of fourth and fifth largest cotton producers in the world, respectively, in 2010. China was the number one cotton importer and was expected to import 11.5 million bales in 2010. Bangladesh and Turkey were the second and third largest importers, respectively; the countries imported 4.3 million bales and 3.0 million bales, respectively, in 2010. The United States was the largest exporter in 2010, shipping 13.5 million bales, followed by India (5.8 million bales) and the Republic of Uzbekistan (3.6 million bales).

© COPYRIGHT 2018 The Gale Group, Inc. This material is published under license from the publisher through the Gale Group, Farmington Hills, Michigan. All inquiries regarding rights should be directed to the Gale Group. For permission to reuse this article, contact the Copyright Clearance Center.

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