After the great fall-2012, it is time for a Cotton-White Gold Rush !
By : Rakesh Manchanda.
Note: A short version of this original text was published by Zambia Daily Mail on 26th.August-2013.
Why must Zambian farmers continue to stake their trust on the white gold or cotton farming?
I am facing this difficult question as well as Zambian cotton challenges.
To help answer such questions allow me first to separate the white gold from the yellow metal called Gold. Today across the world we see supporting laws to protect selected community instinct to hoard hard earned or even blood-money in shape of this yellow metal called Gold. Sad ! in the hoarding process of the Yellow metal gold there is no chance for collective growth of Gold stakeholders, except a tax haven opportunity for selected hoarders. There is no jobs creation, as we essentially see in organised cotton as a cash community crop.
A dramatic drop in domestic-international cotton-white gold prices over the past year,2012 has shaken the farmers` confidence in this national old cultural heritage. Does this cotton crash signal the end of the rally that began at the turn of this millennium?
That white gold had suddenly lost its allure for investors is also reflected in ICAC-International Cotton Advisory Committee data showing that cotton investment and farmer interest was rolling down in 2012-13.
It was recently observed via media and The Post Newspaper in Zambia that the 796 Soya Bean farmers who this year diversified were sitting in small Kasempa District with 5174 bags x 50 Kg and no buyers, although the supportive price initiated by the Farmer`s Union and given to these 796 farmers was 125 K for each 50 Kg bag.
This means in future or even next year a few of these diversified farmers might come back to cotton farming, provided stakeholders are well informed and farmers have ears close to the ground.
Effects of drought, flood and war on the Cotton Prices :
The cotton harvest in Africa, including Zambia is estimated to drop 14 percent due to the late onset of rainy season and thereafter excessive rain. Rains and drought always spoil and damage the annual planned appetite of the global textile mills and are likely to shoot up the market. Unlike war (going on in Republic of Mali-an important cotton grower in W.Africa), flood and drought variables fall in the domain of an act of the God. Private insurance does not cover this loss while ginners are only small stakeholders getting by on bank loans taken out against the their guaranteed assets.
Rain cycle is the `real` subsidy based on the nature`s holistic tax cycle controlled by God and the human environment collectively. Rewards for a bumper crop are then given by nature to the farmers. The challenge starts when there is less rain or more rain. At that time the human subsidy at the cost of a government`s taxpayers is tested.
Government as a weatherman equipped with satellites spends a lot on monitoring rain, but when cotton prices shoot up due to drought or flooding, then the real advantage goes to peddlers & traders, while money is drained out of taxpayers` pockets to cover flood damages to the crop. This short term price fluctuation is unreal and appears subject to no real global financial regulations or government audits.
Cotton buyers suffer from war, flooding and drought as their loan recovery mechanism from the farm to the bank collapses. At times some farmers and even the buying team steal more and show loss at their end with the excuse of war and flooding. If the country is at war driven by internal conflicts , the UN aid needs to compensate damage to farmers and ginners. The onus to make up for flood loss in the shape of a future subsidy lies more with the domestic government and at times also on UN.
What other factors fuel a white gold rally?
With many of the emerging cotton economies entering a growth peak in 2011, and worldwide inflation rising, investors are zeroing in on `white gold` as a hedge. A classic example was the rise in cotton prices in mid-2011,followed by the sudden drop.
These positions surged from 2002 to a peak towards the end of 2011. However, trading interest has fallen by a third since then. `Herd` behaviour is typical among cotton traders who chase assets that are rising and move out equally fast to other green pastures once they sense the price has peaked.
Not the end of the road
With speculators and investors in search of higher returns moving away from white gold, does it mean that cotton prices are now going to fall ? No ! because there are many factors that are still supporting cotton prices.
Cotton demand that was subdued due to higher prices can revive, as common sense says demand will continue until the last man is properly clothed. Inflation shapes a concern in most emerging economies. Depreciating value of money will make many investors park at least part of their money in white gold. While many farmers shall continue to grow cotton as this emerges a strong community cash crop that delivers cash at the doorstep.
All these factors with a mixed bag of luck shall save the cotton prices from a deep decline. But a steep rally taking white gold back to its peak as seen in 2011, is ruled out.
There is a sense of urgency to fall back on Cotton, since the future crop market is still not offering any carry to hold on to cash positions. The outlook today for the new cotton crop isn’t really bullish. Trade activity should therefore pick up, as mills stand starving and need to buy plenty of cotton for annual stocks, while merchants are keen to clean out and recover their current crop inventory.
Improving yield and quality of the natural fibre is essential for domestic cotton stakeholders survival in the days to come. The cotton saga is here to stay in Zambia and Africa for both humanity and business.
rakeshmanchanda 