EDITOR’S NOTE – Texas producer/broker Kelli Merritt (above) addressed the FiberMax Cotton Quality Summit in Vietnam and visited with mill executives during her recent trip to that country, which has become an important customer for U.S. cotton. Merritt, a niche merchant, discovered that Vietnam’s expanding textile mill industry is becoming a major force in the global market. Despite preconceived ideas about the country, she encountered executives eager to learn more about the best way to identify cotton quality. This is her firsthand report of the trip.
Sitting on the tarmac of the sleek, modern airport, I realized I didn’t know that much about Vietnam. Sure, I had those images from my childhood of the evening newscasts with helicopters and jungle grass, Jane Fonda and young Marines toting M-16s, but what would I find when I toured the mills?
If China is the elephant in the room, the one we can’t ignore, India is the rhino. It’s still pretty large, and it’s best to pay attention to its whereabouts. In comparison to the other animals, Vietnam is a baby hippo – smaller, younger and newer. What makes up this fledgling market? How is it motivated? Where does it fit? More importantly, can I find a mutually beneficial business relationship with these textile mills?
Those were questions I asked on my recent trip to the mills in and around Ho Chi Minh City. Forward-looking questions can sometimes be best answered with a brief look backwards.
Not Your Daddy’s Cotton
Cotton producers know that today’s prices are not that different from what our fathers and grandfathers might have expected in the mid-1900s, yet we shake our heads at the thought of diesel prices well under a dollar a gallon and an employee making less in a day than we could expect to pay hourly today.
The cotton we now produce is better, with longer fibers, and is more consistent and uniform. Even with a high quality crop, we need to ship our cotton overseas to become economically viable. The margins for error are exponentially slimmer now. The variables that improve our chances for success are critical. Strategic planning and insider knowledge of markets is survival for the farmer.
As recently as 10 years ago, most of our cotton was used domestically. Now we export 85 percent of it. Comparatively high U.S. labor costs (relative to other spinning industry countries) were the driving force behind this phenomenon. The reality for the modern farmer is that most U.S. cotton is grown to be sold in a foreign market, spun in a foreign mill, cut and sewn in a foreign factory before that garment might ever head back to be sold in one of our malls.
Can Savvy Mean Savings?
When farmers know what overseas markets demand, they can position themselves favorably. Vietnam has recently been named one of the six “next tier markets” under the new U.S. National Export Initiative. That’s a big enough piece of the pie for American farmers to take notice.
I saw a real openness to learn. The Vietnamese still buy most of their cotton on description because it’s cheaper, but they are discovering hidden costs in spinning efficiency with an inconsistent fiber. The United States, with its HVI classing on every bale, offers a value because every bale is classified by uniform USDA standards.
Vietnam is in a transitional stage – just growing in its awareness of the cost-saving benefits of premium upland cotton – and coming to a fresh understanding that better cotton is the means to moving on to the next level. The spinners are looking for cotton that will improve efficiency, help manage risks and move them up the value ladder and grow their industry.
How High Is Too High?
In the last eight months, China’s cotton imports have increased 40 percent while Vietnam’s has increased 63 percent from this time last year. Spinners are riding this wave of optimism undeterred by the increased cost of cotton since they can still sell at a higher price and make a profit.
Demand is good throughout the industry with the supply pipeline at record lows and retailers anxious to fill their shelves again. In Vietnam, word on the street is that its typical orders are larger and more profitable than last year. The current high cotton prices are tolerable throughout the industry for now, and they will last until demand in the pipeline has been met, or consumer demand drops – probably by the end of the summer or early fall.
The monthly output of yarn continues to accelerate and is at a pace to climb to a yearly record for the 12th straight year in China. Vietnam’s textile exports have increased 12 percent this year to date, and other countries are seeing similar spikes. Recent economic problems in Greece will continue to have an impact over the summer and influence both supply and prices.
Legitimacy And Longevity
Visiting the mills taught me to appreciate the determination and motivation of the Vietnamese people. In a burgeoning textile industry, they are willing to take the more tedious, labor intensive, lower profit jobs that larger textile industries such as China and Bangladesh are restricting.
This changing approach of the residing elephant in the room has given more opportunity for Vietnam. It is still working to recoup large initial investments and struggles to improve its business with new machinery and better sources for cotton. Vietnam is a legitimate export market sector that’s here to stay.
I headed back to that sleek, modern airport quite convinced that Vietnam was a significant, expanding market. As producers, it’s encouraging to see flourishing mills that are willing to pay higher prices for our cotton.
These are indeed profitable prices for farmers. As a risk management move, call your favorite cotton merchant and contract some cotton now or call your broker and place a floor through options. We do not have many opportunities to lock in prices such as these.
Contact Kelli Merritt at CropMark Direct in Lamesa, Texas, at (806) 497-6423 or email@example.com.