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Contents
ABOUT THIS INDUSTRY.................................. 4
Industry Definition................................................................4
Major Players...................................................................... 4
Main Activities..................................................................... 4
Supply Chain....................................................................... 5
INDUSTRY AT A GLANCE................................6
Executive Summary............................................................ 8
INDUSTRY PERFORMANCE............................9
Key External Drivers...........................................................9
Current Performance........................................................10
INDUSTRY OUTLOOK.................................... 12
Outlook.............................................................................. 12
Industry Life Cycle.............................................................13
PRODUCTS & MARKETS............................... 14
Supply Chain..................................................................... 14
Products & Services.......................................................... 14
Demand Determinants...................................................... 14
Major Markets....................................................................15
International Trade............................................................ 15
GEOGRAPHIC BREAKDOWN........................ 18
Business Locations........................................................... 19
COMPETITIVE LANDSCAPE..........................20
Market Share Concentration............................................. 20
Key Success Factors........................................................20
Cost Structure Benchmarks............................................. 20
Basis of Competition......................................................... 23
Barriers to Entry............................................................... 23
Industry Globalization........................................................24
MAJOR COMPANIES...................................... 25
OPERATING CONDITIONS............................ 26
Capital Intensity.................................................................26
Technology & Systems......................................................27
Revenue Volatility..............................................................28
Regulation & Policy........................................................... 29
Industry Assistance........................................................... 29
KEY STATISTICS............................................ 31
Industry Data..................................................................... 31
Annual Change..................................................................31
Key Ratios......................................................................... 31
Industry Financial Statement.............................................32
ADDITIONAL RESOURCES............................34
Additional Resources........................................................ 34
Industry Jargon..................................................................34
Glossary............................................................................ 34
CALL PREPARATION QUESTIONS............... 36
Role Specific Questions.................................................... 36
External Impacts Questions.............................................. 37
Internal Issues Questions..................................................37
3. Cotton Farming in the US March 2023
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About IBISWorld
IBISWorld specializes in industry research with coverage on thousands of global industries. Our comprehensive data and in-depth analysis help
businesses of all types gain quick and actionable insights on industries around the world. Busy professionals can spend less time researching
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are truly global in nature.
4. Cotton Farming in the US March 2023
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About This Industry
Industry Definition Farms in this industry primarily grow cotton, which is typically used in textile manufacturing, while the plant’s
cottonseed is exploited for its oil and used in some livestock feeds. Much of the cotton produced domestically is
exported.
Major Players There are no major players in this industry
Main Activities The primary activities of this industry are:
Upland cotton farming
Long staple cotton farming
Cottonseed production
The major products and services in this industry are:
Upland cotton lint
American Pima
Cottonseed
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Supply Chain
SIMILAR INDUSTRIES
Soybean Farming in the US Oilseed Farming in the US Corn Farming in the US Tobacco Growing in the US
RELATED INTERNATIONAL INDUSTRIES
Cotton Growing in Australia Hay and Other Crop Growing in
New Zealand
Cotton Growing in China
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Industry at a Glance
Key Statistics
$8.6bn
Revenue
Annual Growth
2018–2023
-0.9%
Annual Growth
2023–2028
1.7%
Annual Growth
2018–2028
$2.4bn
Profit
Annual Growth
2018–2023
14.0%
Annual Growth
2018–2023
27.7%
Profit Margin
Annual Growth
2018–2023
13.9pp
Annual Growth
2018–2023
6,673
Businesses
Annual Growth
2018–2023
-10.5%
Annual Growth
2023–2028
-1.1%
Annual Growth
2018–2028
14,921
Employment
Annual Growth
2018–2023
-6.9%
Annual Growth
2023–2028
0.3%
Annual Growth
2018–2028
$303.0m
Wages
Annual Growth
2018–2023
-7.5%
Annual Growth
2023–2028
0.6%
Annual Growth
2018–2028
Key External Drivers % = 2018–23 Annual Growth
-3.6%
Demand from textile
manufacturing
4.8%
World price of cotton
2.0%
Trade-weighted index
3.8%
Price of synthetic fiber
Industry Structure
POSITIVE IMPACT
Industry Assistance
High / Steady
Concentration
Low
Regulation & Policy
Light / Steady
MIXED IMPACT
Life Cycle
Mature
Revenue Volatility
Medium
Technology Change
Medium
NEGATIVE IMPACT
Capital Intensity
High
Barriers to Entry
Low / Steady
Industry Globalization
High / Increasing
Competition
High / Steady
Key Trends
COVID-19 reduced downstream demand for farmers
Competition from substitutes creates volatility
The strength of exports is key for the industry's performance
The depreciating dollar will be a lifeline for cotton farmers
Increased innovation will grow crop yields
Commodity prices will be less volatile than in recent years
Trade wars and an appreciating dollar caused exports to fall,
hurting industry operators
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Products & Services Segmentation
Major Players
There are no major players in this industry
SWOT
STRENGTHS
High & Steady Level of Assistance
Low Imports
High Profit vs. Sector Average
High Revenue per Employee
WEAKNESSES
Low & Steady Barriers to Entry
High Competition
High Customer Class Concentration
High Product/Service Concentration
High Capital Requirements
OPPORTUNITIES
High Revenue Growth (2023-2028)
Trade-weighted index
THREATS
Low Revenue Growth (2005-2023)
Low Revenue Growth (2018-2023)
Low Outlier Growth
Low Performance Drivers
World price of cotton
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Executive Summary Closet staple: The number of new entrants will slow as subsidies decline
The Cotton Farming industry has experienced extremely volatile operating conditions over the past five years.
COVID-19 caused states and localities to enact quarantines, reducing consumer spending and demand for products
made by textile mills and clothing manufacturers. Since these industries are critical cotton buyers, the pandemic
caused industry revenue to decline. Plunging cotton prices worsened the industry's performance, as they reduced
the value of sales. Surging commodity prices immediately following the pandemic contributed to a partial
resurgence, but they also made substitutes more attractive. Trade wars and an appreciating dollar caused exports to
fall. Since exports constitute a significant source of revenue for cotton farmers, their poor performance negatively
impacted operators. As interest rates have risen recently, cotton farmers have held off on purchasing better
machines, hindering crop yields. Overall, revenue for cotton farmers is forecast to creep downward at a CAGR of
0.9% to $8.6 billion over the five years to 2023, including a 2.9% decline in 2023 alone.
Cotton farmers will face a resurgence over the next five years, as steadily rising incomes will boost downstream
demand, aiding revenue. Commodity prices won't be volatile, so farmers won't face big drops in revenue resulting
from the plunging price of cotton. Since the US dollar will depreciate, exports will soar, benefiting operators.
Innovations, such as biotechnology, precision agriculture and new pesticides, will increase crop yields, raising sales
for farmers. Overall, revenue for cotton farmers is forecast to rise at a CAGR of 1.7% to $9.4 billion over the five
years to 2028, when profit is expected to account for 29.2% of revenue, a slight increase from five years prior.
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Industry Performance
Key External
Drivers
Trade-weighted index
Exchange rates affect the price competitiveness of US cotton exports. An appreciation in the US dollar increases the
price of US cotton in international markets, eroding the industry's appeal to foreign buyers. The trade-weighted index
is expected to surge in 2023 but decline during the outlook period, representing an opportunity for cotton farmers.
Demand from textile manufacturing
Since cotton is a significant component in textile manufacturing, an increase in demand from textile manufacturing
will boost revenue for the farmers. Demand from textile manufacturing is projected to decline in 2023 but increase
during the outlook period.
Price of synthetic fiber
Higher prices for synthetic fiber have an overall positive effect on revenue for cotton farmers. High prices for
polyester and nylon tend to increase demand for cotton, as textile producers try to constrain the price of finished
goods by purchasing substitutes for synthetic fiber. The price of synthetic fiber is forecast to creep downward in
2023.
World price of cotton
Cotton prices partially determine sales for the industry. In most cases, an increase in the price of cotton positively
influences returns at the farm gate, although spiking prices may shift demand to substitutes. The world price of
cotton is anticipated to creep downward in 2023, presenting a threat to the industry.
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Current
Performance
Revenue for cotton farmers is expected to creep downward at a CAGR of
0.9% tp $8.6 billion over the five years to 2023, including an anticipated
2.9% decline in 2023 alone, when profit is forecast to comprise 27.7% of
industry revenue.
COVID-19 reduced downstream demand for farmers
As governments worldwide shut down businesses and implemented quarantines, consumer spending
plunged.
Households purchased fewer clothing, textile and rug products, reducing demand for cotton from
downstream industries, such as textile mills and apparel manufacturers.
Since cotton farmers derive much of their sales from downstream markets, their poor performance caused
revenue to decline in 2020.
Falling cotton prices caused revenue to falter
Operators mostly want cotton prices to increase, as the value of their sales increases when each bushel of
cotton is more expensive.
Cotton prices tanked at the beginning of the current period because supply outstripped demand, causing
revenue for farmers to decline.
As supply chain disruptions became prevalent following COVID-19, cotton prices have risen significantly,
increasing revenue.
Substitutes make rising prices a blessing and a curse
While higher commodity prices boost sales for cotton farmers, they could lose some revenue if consumers
buy more from substitutes.
Surging cotton prices have helped increase revenue for operators in the years following COVID-19. Still,
they've lost some revenue to synthetic fiber manufacturers, as their prices have risen more slowly than that
of cotton, constraining revenue for the industry.
Weak export markets have diminished opportunities for cotton farmers
Exports have fallen during the current period, as the appreciating US dollar has made domestically
produced goods more expensive.
Markets have also been disrupted by recent trade wars with China, resulting in higher tariffs for cotton
growers.
Since exports comprise most of the industry's revenue, their poor performance has caused revenue to
contract in recent years.
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Rising interest rates create new problems for operators
As inflation reached record highs in the United States in 2022, the Federal Reserve has pushed interest
rates up to reduce prices.
When the cost of borrowing is higher, farmers are less likely to purchase new and better equipment,
constraining output.
Many downstream cotton buyers won't engage in new investments, reducing downstream demand.
Historical Performance Data
Year
Revenue
($m)
IVA
($m)
Establishments
(Units)
Enterprises
(Units)
Employment
(Units)
Exports
($m)
Imports
($m)
Wages
($m)
Domestic
Demand
($m)
Subsidies for
Cotton
Farming
($m)
2014 9,107 1,815 11,371 11,049 23,161 5,737 83.7 409 3,454 83.1
2015 6,030 918 6,815 6,499 17,966 5,007 17.5 274 1,041 70.4
2016 6,900 2,200 8,480 8,172 19,151 5,063 38.5 355 1,876 74.2
2017 9,330 2,477 8,863 8,563 18,878 7,324 8.70 478 2,015 83.6
2018 9,004 2,028 11,929 11,636 21,300 8,022 8.60 449 991 91.4
2019 8,060 2,167 7,985 7,698 16,966 7,363 6.50 410 704 77.9
2020 7,943 2,153 7,472 7,188 15,990 7,051 8.30 236 900 71.9
2021 8,591 2,972 6,971 6,695 15,097 6,446 16.2 306 2,161 99.4
2022 8,881 3,123 6,930 6,638 15,230 6,013 15.1 310 2,883 117
2023 8,626 3,017 6,950 6,673 14,921 6,165 19.5 303 2,481 116
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Industry Outlook
Outlook Revenue for cotton farmers is projected to increase at a CAGR of 1.7% to
$9.4 billion over the five years to 2028, when profit is expected to account
for 29.2% of revenue.
Steady income growth will benefit downstream markets
The economy is expected to withstand current problems related to high inflation, rising interest rates and
recessionary fears, as economic growth is forecast to be strong during the outlook period.
Steadily rising incomes and consumer spending will boost spending on discretionary materials, such as
clothing and textiles, so the industry's downstream buyers will face a surge in revenue.
Since cotton farmers' buyers will face higher demand, they will purchase more cotton, boosting revenue for
operators.
Low commodity price volatility will help industry performance
While often quite volatile, cotton prices will fluctuate much less in the near future.
Low volatility in commodity prices means significant declines don't occur, so revenue for cotton farmers
won't fall drastically in one year.
Export markets will be rejuvenated
The US dollar is expected to depreciate, making domestically produced goods seem less expensive to
foreigners and raising exports.
Since export markets are so intertwined with US cotton farmers, surging exports will provide a significant
revenue stream for operators.
Innovations will raise efficiency
Farmers have started to use systems, such as precision agriculture, to monitor crops more effectively.
Biotechnology will make cottonseed more efficient, while new pesticides will keep crops from being
destroyed.
These innovations will increase crop yields, boosting revenue for cotton farmers.
Performance Outlook Data
Year
Revenue
($m)
IVA
($m)
Establishments
(Units)
Enterprises
(Units)
Employment
(Units)
Exports
($m)
Imports
($m)
Wages
($m)
Domestic
Demand
($m)
Subsidies for
Cotton
Farming ($m)
2023 8,626 3,017 6,950 6,673 14,921 6,165 19.5 303 2,481 116
2024 8,635 3,029 6,908 6,631 14,821 6,246 18.7 302 2,408 113
2025 9,014 3,195 6,956 6,660 15,143 6,632 18.3 309 2,400 118
2026 9,101 3,261 6,706 6,399 14,987 6,733 18.1 307 2,387 118
2027 9,215 3,317 6,642 6,328 15,019 6,855 17.9 309 2,378 119
2028 9,383 3,405 6,625 6,302 15,150 7,019 17.8 312 2,381 122
2029 9,472 3,445 6,622 6,294 15,237 7,100 17.9 314 2,390 123
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Industry Life Cycle The life cycle stage of this industry is Mature
LIFE CYCLE REASONS
Profit has shifted significantly during the current period
Cotton growers are consolidating
Global demand for cotton is driving demand for the industry's output
Contribution to GDP
Cotton farmers' contribution to the economy has been growing faster than US GDP.
Market Saturation
The buying and selling of cotton is present throughout the entire economy, so the market is very saturated. Farmers
must reduce costs and sell at lower prices to boost their revenue.
Innovation
Innovations, such as precision agriculture, have helped increase crop yields. Some products, such as cottonseed,
have become more marketable when using biotechnology, as more of it has become safe for animals to eat.
Consolidation
Concentration is still low, but consolidation has been occurring at a rapid pace. Larger farms can reduce fixed costs,
which prevents malaise when commodity prices decline.
Technology & Systems
Cotton farmers have been genetically modifying their crops to increase their growth potential and protect them from
insects. Fertilizers and pesticides have become more advanced also.
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Products & Markets
Supply Chain Key Buying Industries
1st Tier
Apparel Knitting Mills in the US
Women’s, Girls’ and Infants’ Apparel Manufacturing in
the US
Men's & Boys' Apparel Manufacturing in the US
Textile Mills in the US
2nd Tier
Men's & Boys' Apparel Wholesaling in the US
Women's & Children's Apparel Wholesaling in the US
Piece Goods, Notions & Other Apparel Wholesaling in
the US
Key Selling Industries
1st Tier
Crop Services in the US
Water Supply & Irrigation Systems in the US
Farm, Lawn & Garden Equipment Wholesaling in the US
2nd Tier
Coal & Natural Gas Power in the US
Fertilizer Manufacturing in the US
Commercial Building Construction in the US
Tractors & Agricultural Machinery Manufacturing in the
US
Products & Services
Cotton prices dictate spening on upland cotton
Upland cotton is the predominant type grown in the United States and represents more than three-quarters
of farmers' revenues.
This type of cotton is used for standard products, such as clothing and bookbinding.
As cotton prices have surged amid the COVID-19 recovery, producers have been able to increase their
sales, boosting upland cotton's share of revenue during the current period.
High inflation drives down demand for long staple cotton
Long staple cotton (ELS or American Pima cotton) represents a small portion of revenue and is produced in
arid regions of southwestern Texas and California.
American Pima cotton is used in high-value products, such as sewing thread, bath towels, rugs and textiles.
As supply chain disruptions have caused prices to soar in recent ears, consumers have spent less of their
income on luxuries, causing demand for high-value products to fall and ELS cotton's share of revenue to
decline.
Substitutes' strength affects spending on cottonseed
Cottonseed is made into vegetable oil for cooking and into various feeds for livestock.
Cotton farmers compete with producers of substitute oilseeds (e.g. canola, corn, soybeans) for the cooking
oil and livestock feed markets.
Since the prices of other oilseeds have increased more than cottonseed, demand for cottonseed has
increased as buyers try to save money, boosting the segment's revenue share during the current period.
Demand Demand for cotton is mostly a function of activity in downstream textile
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Determinants milling industries, both in the United States and throughout the world.
Since domestic mills supply a small portion of the total consumption of cotton products on the US market, farmers
have stepped up their exporting activities. Destinations have mainly included developing countries with low
production costs, such as Mexico, Vietnam and Turkey, while large textile producers such as China have
significantly increased their imports of raw cotton from the United States. Since exports are so essential to cotton
farmers, the value of the US dollar is key to the industry's success. Exports of US cotton decrease when the US
dollar is strong, leading overseas buyers to favor cotton from competing nations such as India and Pakistan.
Production changes in other countries can also contribute to falling demand for US cotton. As clothing production in
countries such as China plunged because of COVID-19, the value of exports fell in 2020. Any large increase in the
price of cotton can also constrain demand, as processors switch production to alternative fibers such as wool, nylon
and polyester. An increase in the price of substitutes can boost demand for cotton. The average level of household
disposable income partially drives final-user demand for cotton textiles and apparel. Clothing items largely represent
discretionary spending, which is sensitive to changes in income levels. Any growth in real income levels will increase
spending on these downstream products.
Major Markets
Domestic apparel knitting struggles with offshoring
Cotton farmers receive some sales from the apparel knitting industry, as cotton is necessary for the knitting
of clothing, such as underwear, outwear, nightwear and other fabrics.
Domestic apparel knitters have undergone a significant contraction over the past two decades, as offshoring
has become attractive since labor is less expensive in developing countries, potentially reducing
downstream demand for cotton farmers.
Operators receive much of their revenue through exports, so they can still generate sales from apparel
knitting companies abroad, making this product segment's growth as a percentage of income ambiguous
during the current period.
COVID-19 caused demand from textile mills to crater
Textile mills produce fabrics, window curtains, drapes and other textile products using yarn, fiber and other
threads, requiring cotton from farmers.
Since products made by textile mills are primarily discretionary, spending on fabrics, curtains and other
goods plunged amid the drop in consumer spending caused by COVID-19.
Demand for cotton from textile mills declined worldwide, as the pandemic disrupted economies all over the
globe, causing spending from textile mills to fall as a percentage of revenue during the current period.
High input prices boost revenue from processors
Processors make materials, such as vegetable oil, some of which use farmer-made cottonseed.
Revenue from processors has soared during the current period. Input prices have surged in the years
following the pandemic because of supply chain disruptions.
International Trade Exports in this industry are High and Decreasing
Imports in this industry are Low and Increasing
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Imports
Imports aren't that significant for cotton farmers
Since the United States is a major producer of cotton, farmers very rarely need to import the material.
Cotton is often imported only when some farms face a terrible harvest.
Harvests were somewhat lacking during COVID-19, so some farmers imported cotton to fill in the gaps,
causing imports to surge during the current period.
Human rights laws prevent farmers from importing from some regions
The United States wants to portray itself as a champion of human rights, so they often erect trade barriers
on countries that treat their populations poorly.
Since China has engaged in human rights violations against the Uyghur population in Xinjiang, the United
States has forbidden companies from importing cotton from this region, negatively impacting farmers.
Exports
COVID-19 inhibits demand from abroad
As countries shuttered businesses and enforced quarantines during COVID-19, spending on discretionary
items (e.g. clothing) plunged.
Since demand for clothing and other products that use cotton declined, the need for cotton worldwide fell
substantially, causing exports to tank.
US-China tensions threaten the cotton market
In the late 2010s, the Trump administration initiated a trade war with China to increase domestic production.
China retaliated, raising their tariffs on US-produced materials, causing exports of cotton to fall.
US dollar appreciation makes exports more expensive
The dollar has appreciated during the current period, making US-produced cotton more expensive than
cotton produced in other countries.
Foreign textile mills and other buyers have purchased more cotton from other countries besides the United
States because of the higher dollar value, causing exports to decline during the current period.
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Geographic Breakdown
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Business Locations The Southeast has a humid climate
The Southeast region is home to states, such as North Carolina, Georgia and Florida, that have lots of
arable land and humid climates in the summer.
Hot and wet summers enable operators to grow cotton in these states, so the Southeast region contains a
significant percentage of cotton farmers.
The Plains has so much space
Many farms also grow cotton in the Plains region, particularly Missouri.
Since the Plains region is sparsely populated, there's lots of space to grow crops, including cotton.
Texas contains more cotton farmers than any other state
Texas is the largest state in the continental United States, so it has a significant amount of available land for
growing crops, encouraging cotton farmers to locate there.
The eastern part of the state has a similar climate to the Southeast region, enabling cotton production.
Much of the nation's long staple cotton is also grown in Texas, as the arid portions of the state near the Rio
Grande have the right environment for producing it.
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Competitive Landscape
Market Share
Concentration
Concentration in this industry is Low
Low barriers to entry encourage fragmentation
Barriers to entry for cotton farming are much lower than in other industries as becoming a cotton farmer only
requires some land, a few workers and basic machinery.
Since barriers to entry are mild, many small farmers decide to grow cotton, keeping concentration low.
Volatility has increased consolidation
Reliance on trade, input prices and economic conditions make the industry volatile, which has encouraged
many small farms to merge with larger ones.
Big farms have lower fixed costs, so massive declines in revenue don't cause operators to shut down.
Key Success
Factors
IBISWorld identifies over 200 Key Success Factors for a business. The most important for this industry are:
Manage exchange rates for purchasing inputs:
Cotton is often marketed in advance. Farmers need to understand and effectively manage their price and exchange-
rate risks.
Establish overseas networks for developing export markets and sourcing imports:
Overseas markets are becoming increasingly important to this industry given declining activity in domestic textile
mills.
Secure economies of scale:
The size of the cotton farm determines the extent of the economies of scale achieved. This influences the farm's
cost structure and profitability.
Ensure irrigation water is available:
Water availability affects the quality of cotton harvests and the area of land devoted to cotton growing.
Take advantage of government subsidies and other grants:
The government offers subsidies to cotton farmers, and support payments can comprise a significant portion of
revenue. Farmers can use these subsidies to maximize their profitability.
Cost Structure
Benchmarks
Profit
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Profit surges as input prices rise
In 2023, profit is anticipated to comprise 27.7% of revenue.
As the economy recovered from COVID-19, demand for
clothing, textiles and other goods increased, which pushed up
the price of cotton and its related products.
Since textile mills, food processors and other buyers must
purchase cotton products from farmers, operators have seen
the value of their sales skyrocket, causing revenue and profit to
soar during the current period.
Wages
More automation causes wages to creep downward
Wages are expected to make up 3.5% of revenue in 2023.
The increased use of drones, tractors and other machines has
made some jobs within cotton farming unnecessary, so wages'
share of revenue has falllen.
Purchases
The ability to pass on high prices ensures purchases don't
overwhelm farmers
In 2023, purchases are projected to comprise 35.5% of
revenue.
Purchase costs include those for chemicals, fertilizer and
seeds, along with fuel and electricity costs.
Since cotton buyers can pass on high prices to their buyers,
purchases won't overwhelm operators.
Purchase costs have fallen slightly during the current period, as
high input prices resulting from the pandemic recovery have
boosted profit for farmers.
Marketing
Marketing costs are anticipated to make up 0.5% of revenue in 2023.
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Depreciation
Depreciation is forecast to make up 3.8% of revenue in 2023.
Rent
In 2023, rental costs are projected to make up 8.1% of revenue.
Utilities
Utility costs are forecast to make up 9.4% of revenue in 2023.
Other Costs
Ginning is a major miscellaneous cost
In 2023, costs included in the "other" category are anticipated
to comprise 11.4% of revenue.
Ginning involves separating cottonseeds from lint so these two
products can be used for separate purposes.
Ginning costs have fallen as a percentage of revenue during
the current period, as profit has crowded out the significance of
other segments.
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Basis of
Competition
Competition in this industry is High and the trend is Steady
Downstream demand for cotton products, the markets for alternative
crops and global conditions influence cotton plantings.
The ease of substituting other products or replacement sources creates a competitive environment for cotton
farmers. Farmers must accept market prices and boost profit by controlling costs.
COMPETITION AMONG COTTON FARMERS
Competition in the Cotton Farming industry is almost entirely price-based
because cotton is largely a uniform product.
Farm profitability can still vary based on cost controls, maximizing yields and quality. Size, location and the
production methods used all influence farm success. Modern machines can efficiently do the work of multiple
laborers, but they are expensive and only cost-effective if used on large tracts of land. Climate and growing
conditions determine yields but vary by region. Farmers also compete on crop quality. Cotton is assessed and
graded on the basis of its staple length, texture and color. Premium-graded cotton can demand a higher price than
other cotton and is used to produce apparel and textile products targeted at the top end of the market.
EXTERNAL COMPETITION
US cotton growers compete with players in other fiber industries and
overseas producers.
Raw cotton competes with alternative natural (e.g., wool, silk) and synthetic fibers. Over the past five years, demand
for cotton has grown faster than demand for man-made fibers. This trend may change, depending on technological
changes to synthetics. Research and development are underway to incorporate the “breathable” quality of cotton
fabric into synthetic fabrics. These developments in downstream markets may eventually affect the competitiveness
of cotton growers in fiber markets. On the international market, US cotton growers compete with other large
exporters of cotton such as Australia and Uzbekistan. Although government subsidies support US farmers, their
global competitive advantage may be eroded because of an increasing level of cotton in developing countries.
Barriers to
Entry
Barriers to Entry in this industry are Low and the trend is Steady
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Legal
While the licensing required to become a cotton farmer is
very light, potential entrants must contend with the
environmental, labor and other forms of regulation that
are imposed on them.
Start-Up Costs
Entrants must purchase physical capital (e.g. tractors,
machines, drones), seeds, chemicals and fertilizer to grow
cotton. They must also secure wages for their workers
and be located in a place with lots of water.
Differentiation
While cotton farmers sell similar products, branding is
nearly nonexistent in the industry since operators don't
sell directly to consumers. Farmers differentiate
themselves by offering competitive prices.
Capital Intensity
Capital is a greater barrier to entry for cotton farmers, as
setting up a farm requires extensive investment in
machinery. Labor costs are also quite low in this industry.
Barriers to Entry Checklist
Competition High
Concentration Low
Life Cycle Stage Mature
Technology Change Medium
Regulation & Policy Light
Industry Assistance High
Industry
Globalization
Globalization in this industry is High and the trend is Increasing
Although the United States is a significant player in the global cotton market, globalization affects cotton farmers only
indirectly because the commodity is usually exported through farmers' cooperatives. These groups handle much of the
industry's exports each year.
US cotton farms are overwhelmingly locally owned. This is partly attributed to the low concentration in the industry.
Foreign owners are largely present in downstream ginning and marketing industries.
Similar to other commodities, globalization is placing pressure on US cotton farmers to become more competitive. The
tightly contested world cotton market pushes farmers to improve their productivity and quality. The ability of customers to
source cotton from anywhere in the world is also forcing domestic growers to employ the latest technology to raise crop
production and minimize costs.
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Major Companies
There are no major players in this industry.
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Operating Conditions
Capital
Intensity
The level of capital intensity is High
The Cotton Farming industry requires extensive amounts of
capital investment. Most farming activities (e.g. plowing,
sowing, harvesting, ginning) are mechanized. Examples of
capital equipment needed to operate a cotton farm include
tractors, storage mills, irrigation systems and cotton gins,
which separate the lint from the seed. Technological
advancements make these items increasingly costly, but
they let farmers use less labor and ensure a more
consistent crop quality. In 2023, the average cotton farm is
expected to spend $1.08 on capital for every dollar spent
on labor.
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Technology &
Systems
Potential Disruptive Innovation: Factors Driving Threat of Change
Level Factor Disruptive
Effect
Description
Low Rate of
Innovation
Unlikely A ranked measure for the number of patents
assigned to an industry. A faster rate of new
patent additions to the industry increases the
likelihood of a disruptive innovation occurring.
Medium Innovation
Concentration
Potential A measure for the mix of patent classes
assigned to the industry. A greater
concentration of patents in one area increases
the likelihood of technological disruption of
incumbent operators.
High Ease of Entry Likely A qualitative measure of barriers to entry.
Fewer barriers to entry increases the
likelihood that new entrants can disrupt
incumbents by putting new technologies to
use.
Very Low Rate of Entry Very
Unlikely
Annualized growth in the number of
enterprises in the industry, ranked against all
other industries. A greater intensity of
companies entering an industry increases the
pool of potential disruptors.
High Market
Concentration
Likely A ranked measure of the largest core market
for the industry. Concentrated core markets
present a low-end market or new market entry
point for disruptive technologies to capture
market share.
Low levels of innovation limit the threat to incumbent operators from new technologies disrupting their operations. However,
a low rate of growth in technology can also create exposure for incumbents as the trajectory of innovation in other markets
could lead to unforeseen competitive disadvantages.
The technological factors supporting the disruptive innovation potential are connected to an industry structure that is
accommodative to new entrants. The relative ease of entry into the industry magnifies the threat of disruption regardless of
other factors as one-off occurrences are more likely to succeed. However, the current rate of new entrants is low,
suggesting that there is a limited number of new companies that are potential innovators within the industry.
The major markets for this industry are highly concentrated, which implies that the market has a focus on key customer
segments. This presents an opportunity for strategic entrance into lower-end markets or unserved markets for innovations
to take on a disruptive trajectory.
Operators in the Cotton Farming industry aren't exposed to significant
technological disruptions because companies provide an essential output that
cannot be easily replaced.
Cotton and cotton seeds will always be an essential part of specific end products, including cotton textile, animal feeds and
oils made from cotton seeds. Although there are possible substitutes that can sometimes be used in times of high
commodity prices, the inherent nature of agricultural products having their own unique properties protects the industry from
becoming obsolete. There aren't any disruptions that would make the industry irrelevant or replaced by another industry.
The level of technology change is Medium
The Cotton Farming industry is a major technology user and has increased its
crop yields through a series of advances.
Significant breakthroughs have been made in the areas of seed varieties, pesticides, fertilizers and machinery. The industry
has also benefited from improvements in crop management practices such as irrigation, reduced tillage, pest control and
crop rotation.
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Seed and plant development
Biotechnology provides farmers with more sophisticated ways of developing
new plant and seed varieties.
Several private companies are altering the properties of cotton plants through gene technology. So far, developments have
focused on increasing insect resistance in plants. Other research is aimed at developing plants that are resistant to
herbicides (weed-killing chemicals), have more growth potential and use water more efficiently. Results demonstrate that
genetically modified (GM) cotton has proven most effective in controlling pests and diseases, including the bollworm, the
pink bollworm and the tobacco budworm.
Fertilizers and pesticides
Cotton is one of the most responsive crops to fertilizers because it's
susceptible to the nutritional makeup of the soil.
In particular, fertilizers enable cotton producers to adjust soil nitrogen levels. Regular soil testing programs help farmers
determine the appropriate level of fertilizer required to maximize crop yields.
Pesticides help farmers minimize crop damage. Cotton farmers use pre- and post-emergent herbicides to help control
weeds once crops are sown. Chemicals are often applied through techniques such as aerial spraying. Before planting,
farmers can also treat seeds through fungicidal and insecticidal treatments.
Revenue
Volatility
The level of volatility is Medium
Commodity prices produce major volatility
Since manufacturers often need cotton to produce clothing and other materials, revenue for cotton producers tends
to surge when commodity prices are high and plunge when prices are low.
Prices fluctuate often because of supply chains, weather, demand and other factors, so they create significant
volatility for farmers.
Downstream demand is vital for industry success
Since textile mills, oil processors, apparel manufacturers and other operators buy most of the cotton from the
industry, maintaining a high level of demand for these products is integral for the success of cotton farmers.
The strength of these industries has ebbed and flowed during the current period (generally falling during COVID-19
and rising thereafter), creating volatility for cotton growers.
Exchange rates fluctuate often
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Since operators export the majority of what they grow, a weak dollar is necessary for the success of the industry.
Exchange rates fluctuate because of many reasons, including interest rates across countries, trade agreements,
the attractiveness of foreign investment and other factors, so it makes revenue for the industry quite volatile.
Regulation &
Policy
The level of regulation is Light and the trend is Steady
Environmental Protection Agency (EPA)
The EPA regulates cotton farmers in a variety of ways. Since operators use farm chemicals, such as fertilizers and
pesticides, the EPA ensures that these materials aren't secreted into the environment in an unsafe way. The agency also
regulates farmers' use of natural resources, as too much human activity in a region can disrupt the ecosystem.
US Department of Agriculture (USDA)
The USDA requires that all farmers must obtain a permit to grow genetically modified (GM) crops. Since many cotton
farmers use genetic modification, these regulations apply to them. Cotton farmers must also obtain certification from the
USDA to grow their crops organically.
Occupational safety laws
Similar to most industries, cotton farmers must adhere to the regulations set out by the Occupational Safety and Health
Administration (OSHA). They must pay their workers fairly for overtime hours, compensate employees well in case of injury
and protect them from dangerous conditions.
Pandemic-era regulations
Since cotton farming was essential in many respects, their businesses weren't shut down during COVID-19. Operators
were forced to enforce social distancing laws and mask-wearing indoors. Many farm companies also required their
employees to receive the COVID-19 vaccine when it came out.
Industry
Assistance
The level of industry assistance is High and the trend is Steady
Private
The Cotton Board
This organization oversees and implements the Cotton Research and Promotion Program by collecting information on
upland cotton that's harvested and ginned in the United States. They use this information to support US cotton producers
and importers.
The National Cotton Council
This council is the primary forum where producers, ginners, warehousers, merchants, cottonseed producers and textile
manufacturers meet to discuss production and policies. Through consensus building, the group works with the government
to ensure cotton's interests are met.
Public
Farm Bill
Every few years, the US government passes a farm bill, which gives cotton farmers a certain level of assistance based on
the crop produced and its acreage. The state ensures that farmers don't go out of business when crop prices plunge.
Subsidized Crop Insurance
Private companies sell crop insurance to farmers, and the US Department of Agriculture (USDA) often subsidizes farmers
so more of them can access it.
Noninsured Crop Assistance Program (NAP)
This program enables cotton farmers to get money from the USDA in case of inclement weather. These funds are
specifically designed for crops that aren't covered by insurance.
Tariffs
In 2018, China imposed tariffs on US products worth $34.0 billion, including cotton. This was in response to the trade war
initiated by the Trump administration. Since cotton farmers export to many countries, they want Chinese tariffs to be low, so
this action hurts the industry.
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COVID-19 relief
The pandemic caused congress to pass the Paycheck Protection Program (PPP), which enabled companies to get
forgivable loans from the federal government to pay for lost wages and rents because of social distancing regulations and
quarantines. While cotton farmers continued operating during COVID-19, many companies took advantage of PPP loans,
as they were negatively affected by social distancing rules and the big drop in spending that resulted from the pandemic.
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Additional Resources
Additional
Resources
United States Department of Agriculture
http://www.usda.gov
United States International Trade Commission
http://www.usitc.gov
US Census Bureau
http://www.census.gov
Industry Jargon AMERICAN PIMA
A higher-value variety of cotton with fiber lengths of 1.5 inches or longer. Also known as extra-long staple (ELS), this
variety is typically used to make sewing thread and premium linens.
AMERICAN UPLAND
The dominant variety of cotton grown in the United States, often simply referred to as upland. It typically has fiber
lengths between 1.0 and 1.25 inches.
COOPERATIVE (CO-OP)
A jointly owned, vertically integrated organization that produces and distributes goods for the benefit of the owners.
GENETICALLY MODIFIED (GM)
Organisms that have had their DNA altered through genetic engineering. A large proportion of plantings in the
United States, and increasingly throughout the world are of GM variety.
GINNING
A process carried out by a machine to separate the fibers from the seeds of picked cotton.
HERBICIDE
A substance used to destroy unwanted plants and weeds, while leaving a desired crop relatively unharmed.
STAPLE
The length of the cotton fiber.
Glossary BARRIERS TO ENTRY
High barriers to entry mean that new companies struggle to enter an industry, while low barriers mean it is easy for
new companies to enter an industry.
CAPITAL INTENSITY
Compares the amount of money spent on capital (plant, machinery and equipment) with that spent on labor.
IBISWorld uses the ratio of depreciation to wages as a proxy for capital intensity. High capital intensity is more than
$0.333 of capital to $1 of labor; medium is $0.125 to $0.333 of capital to $1 of labor; low is less than $0.125 of
capital for every $1 of labor.
CONSTANT PRICES
The dollar figures in the Key Statistics table, including forecasts, are adjusted for inflation using the current year (i.e.
year published) as the base year. This removes the impact of changes in the purchasing power of the dollar, leaving
only the "real" growth or decline in industry metrics. The inflation adjustments in IBISWorld’s reports are made using
the US Bureau of Economic Analysis’ implicit GDP price deflator.
DOMESTIC DEMAND
Spending on industry goods and services within the United States, regardless of their country of origin. It is derived
by adding imports to industry revenue, and then subtracting exports.
EMPLOYMENT
The number of permanent, part-time, temporary and seasonal employees, working proprietors, partners, managers
and executives within the industry.
ENTERPRISE
A division that is separately managed and keeps management accounts. Each enterprise consists of one or more
establishments that are under common ownership or control.
ESTABLISHMENT
The smallest type of accounting unit within an enterprise, an establishment is a single physical location where
business is conducted or where services or industrial operations are performed. Multiple establishments under
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common control make up an enterprise.
EXPORTS
Total value of industry goods and services sold by US companies to customers abroad.
IMPORTS
Total value of industry goods and services brought in from foreign countries to be sold in the United States.
INDUSTRY CONCENTRATION
An indicator of the dominance of the top four players in an industry. Concentration is considered high if the top
players account for more than 70% of industry revenue. Medium is 40% to 70% of industry revenue. Low is less
than 40%.
INDUSTRY REVENUE
The total sales of industry goods and services (exclusive of excise and sales tax); subsidies on production; all other
operating income from outside the firm (such as commission income, repair and service income, and rent, leasing
and hiring income); and capital work done by rental or lease. Receipts from interest royalties, dividends and the sale
of fixed tangible assets are excluded.
INDUSTRY VALUE ADDED (IVA)
The market value of goods and services produced by the industry minus the cost of goods and services used in
production. IVA is also described as the industry's contribution to GDP, or profit plus wages and depreciation.
INTERNATIONAL TRADE
The level of international trade is determined by ratios of exports to revenue and imports to domestic demand. For
exports/revenue: low is less than 5%, medium is 5% to 20%, and high is more than 20%. Imports/domestic demand:
low is less than 5%, medium is 5% to 35%, and high is more than 35%.
LIFE CYCLE
All industries go through periods of growth, maturity and decline. IBISWorld determines an industry's life cycle by
considering its growth rate (measured by IVA) compared with GDP; the growth rate of the number of establishments;
the amount of change the industry's products are undergoing; the rate of technological change; and the level of
customer acceptance of industry products and services.
NONEMPLOYING ESTABLISHMENT
Businesses with no paid employment or payroll, also known as nonemployers. These are mostly set up by self-
employed individuals.
PROFIT
IBISWorld uses earnings before interest and tax (EBIT) as an indicator of a company’s profitability. It is calculated as
revenue minus expenses, excluding interest and tax.
REGIONS
West | CA, NV, OR, WA, HI, AK
Great Lakes | OH, IN, IL, WI, MI
Mid-Atlantic | NY, NJ, PA, DE, MD
New England | ME, NH, VT, MA, CT, RI
Plains | MN, IA, MO, KS, NE, SD, ND
Rocky Mountains | CO, UT, WY, ID, MT
Southeast | VA, WV, KY, TN, AR, LA, MS, AL, GA, FL, SC, NC
Southwest | OK, TX, NM, AZ
VOLATILITY
The level of volatility is determined by averaging the absolute change in revenue in each of the past five years.
Volatility levels: very high is more than ±20%; high volatility is ±10% to ±20%; moderate volatility is ±3% to ±10%;
and low volatility is less than ±3%.
WAGES
The gross total wages and salaries of all employees in the industry.
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Call Preparation Questions
Role Specific
Questions
Sales & Marketing
Does your farm produce additional crops to maintain revenue during growing seasons?
Cotton farms typically specialize in cotton growing.
Has the depreciation of the US dollar limited competition from imports?
Cotton imports pose little threat to the industry because the United States has low domestic demand for cotton.
Strategy & Operations
How has your farm adapted to the growing threat of adverse weather?
Cotton is a relatively durable crop.
Have supply chain disruptions brought on by the COVID-19 (coronavirus) pandemic impacted your operating costs?
Cotton farms mainly spend on fertilizer and seeds.
Technology
Does your farm utilize genetically modified crops?
GMO cotton seeds have helped reduce costs for farmers.
Does your company engage in any of its own research and development?
Most cotton farms are not working to develop GMO cotton.
Compliance
Has your farm benefited from increased cotton subsidies?
Subsidies have historically been a crucial source of revenue for cotton farms.
How does your farm keep up with USDA regulations?
Cotton farmers face a slew of regulations.
Finance
How have declines in the price of cotton impacted your company's profitability?
The world price of cotton has a major effect on profit.
Has the COVID-19 affected your farm's profitability?
Cotton farm profitability varies significantly.
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External Impacts
Questions
Impact: Subsidies for cotton farming
How much of your revenue is derived from subsidies? How do you generate revenue when subsidies decline?
US cotton growers derive much of their income from government assistance programs, including subsidies. Any
change in farm policy will have a significant effect on the returns received by cotton growers.
Impact: World price of cotton
How do weather conditions influence your overall performance? How do you prepare for fluctuations in the price of
cotton?
Cotton prices partially determine sales. In most cases, an increase in the price of cotton positively influences returns
at the farm gate, although spiking prices may shift demand to substitutes.
Impact: Trade-weighted index
How much of your revenue comes from exports? How do you distinguish your products from competing imports?
Exchange rates affect the price-competitiveness of US cotton exports. An appreciation in the US dollar increases the
price of US cotton in international markets, eroding the industry's appeal to foreign buyers.
Internal Issues
Questions
Issue: Appropriate physical growing conditions
How do you assess biophysical conditions for a plantation? Do you regularly assess biophysical conditions?
Cotton farming requires fertile soils that contain the necessary nutrients to assist cropping activities. The selection of
appropriate land for cropping helps maximize crop yields and annual harvest volumes.
Issue: Establishment of export markets
How much of your annual sales come from exports? Have these sales been affected by declines in the value of the
US dollar?
Overseas markets are becoming increasingly important to this industry given the falling activity levels in US textile
mills.
Issue: Availability of irrigation water
Is the water in your area clean and ideal for growing? How can you manage operating costs during water
shortages?
Water availability affects the quality of cotton harvests and the area of land devoted to cotton growing.
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