The month before cotton reached its highest price ever in March, Brad Heffington bought a 7760 John Deere picker for $500,000 to help get as much “white gold” as he could out of his 6,000 acres in West Texas. Seven months later the harvester is for sale. The 43-year-old farmer’s crop is wilting; the few plants left are too short for the massive piece of equipment to handle, he says.
At least 65 percent of his crop is gone as drought crushes growers’ chances of benefiting from record prices. “It’s going to be the year of wisha, shoulda, coulda,” says Heffington, who has farmed in the biggest cotton patch in the top-exporting country on the planet for 23 seasons. “It’s terrible not to be able to take advantage of these prices.”
Farmers in West Texas are still likely to get the highest spot prices since record keeping began, according to the Texas AgriLife Extension Service in Lubbock, the unofficial capital of the U.S. cotton industry. They should get an average of around 90¢ a pound—if there’s anything to sell.
The stretch from October 2010 to August 2011 was the driest 11-month period in Texas since 1895, when the National Weather Service started tracking such things. Governor Rick Perry, a Republican Presidential candidate and son of a cotton farmer, recently asked supporters to pray for rain. The government estimates 33 percent of the U.S. cotton crop will be lost, topping the record of 27 percent in 1933.
“It’s an unmitigated disaster,” says Darren Hudson, director of the Cotton Economics Research Institute at Texas Tech University. He says production in West Texas could fall from the 10-year average of about 4.5 million bales to 1.5 million.
The industry, which employs an estimated 38,000 people in the state, generates about $6 billion of economic activity in West Texas. This year that amount may be sliced by 75 percent, Hudson says. “The people who are really going to be hurt bad are all the service industries,” says Jay Yates, a risk specialist with Texas AgriLife. “Our warehouses are going to be empty. All those forklifts that load cotton won’t be rented.”
Though the disaster could force weaker farms out of business, crop insurance will help growers avoid the devastation wrought by the Dust Bowl, and the exceptionally good year they had in 2010 provides a buffer. The U.S.’s status as the No. 1 exporter of cotton is safe. “Even at half our crop, we’re still going to export more than Brazil and Australia,” says Hudson. The drought, however, shows no sign of letting up, and farmers may have to plant less acreage next year. “Two years like this back-to-back would significantly change things,” Yates says.
Growers now worry about committing to a bale contract, which obligates them to deliver a fixed amount no matter what Mother Nature hands them. Signing a bale contract is “suicide” this year, says Wesley Butchee, who farms 2,400 parched acres southwest of Lubbock. Merchants who buy the cotton are scared of the opposite—an acre contract, in which farmers promise bales based on how much they produce. That can leave merchants without enough supply, says Alan Underwood, president of Underwood Cotton, a merchant in Lubbock.
Businessmen such as Underwood don’t want to be the next Paul Reinhart Inc. Once one of the biggest U.S. cotton merchants, it filed for bankruptcy in October 2008 after volatility in the futures market triggered margin calls that caused significant losses. These days the furthest out Underwood will contract to sell cotton is 60 days.
Heffington has to pick what’s left of his crop. He says a lot of the cotton that survives has smaller bolls, which means the fibers will be shorter, and his production will drop further—another reason he needs a buyer for his John Deere picker. He hopes that Australians, who expect a record crop, may be interested. “I don’t need that machine,” Heffington says. “It’s an investment that’s not going to pay me anything this year.”