During May 1998, adequate moisture favored winter grains and spring-sown crops in Poland, Hungary, and Romania. Below-normal precipitation in the Czech-Republic and Serbia limited moisture for crop development. May temperatures were slightly above normal in the north and slightly below normal in the south. During the first week of June, light showers early in the week were followed by warmer, drier weather as the week progressed. The warm, dry conditions accelerated crop development and increased crop water requirements. Hot weather continued into the week of June 7 - 13, but subsided by week's end. During the week of June 14 - 20, moderate rain fell across eastern Poland and northern Romania. Temperatures were normal except in southern Romania and Bulgaria, where temperatures averaged slightly above normal. Elsewhere, temperatures were below normal and slowed crop development. During June 21 - 27, widespread light showers fell from the Czech Republic and Slovakia southeastward through Hungary into western Romania, benefitting immature winter grains and spring-sown crops. From June 28 through July 4, hot and dry weather increased stress on non-irrigated crops across southern Serbia and Bulgaria. Light showers fell from Slovakia southeastward through Hungary into northern Serbia and western Romania, benefitting immature winter grains and spring-sown crops. Temperatures were below normal in northern areas and well above normal in the southern countries.

During May, pre-monsoonal hot weather is the usual meteorological story for India. May 1998 was no exception. During early May, unseasonable shower activity in the far north and across the southern interior held temperatures to below-normal levels. However, later in the month, a heat wave developed over central and southern India, boosting May temperatures to above-normal levels as highs commonly reached the middle to upper 40's degrees Celsius. During June 1998, seasonal rains developed and spread on-time from the extreme south, moving toward the northwest. In late June, a northward surge in the monsoon brought substantial rainfall to primary oilseed and cotton areas of western and northern India. Rainfall was the heaviest so far this season (50 to 100 millimeters) from Gujarat's groundnut basin northward through Rajasthan and Haryana, spurring coarse grain, oilseed, and cotton planting. Rain aided fieldwork across northern India's heavily irrigated rice areas (Uttar Pradesh and Bihar), which also received their first significant rains of the season. Elsewhere, moderate to heavy rain continued over the eastern rice region, from the rain-fed areas of east-central India through Bangladesh and Assam. Very heavy rain (100 to 400 millimeters) continued along India's southwest coast and drier weather, typical for this time of year, descended over the southern interior. By early July 1998, the southwest monsoon, as judged by this season's rainfall distributions, is progressing on schedule and will typically become established over Pakistan around the second week of July.

During May 1998, hot, dry weather stressed pastures and livestock across northern Mexico and delayed corn planting in central and southern Mexico. The rainy season was about a month behind schedule. During the first week of June, light to moderate rain fell across southern and southeastern Mexico, increasing moisture for corn planting. The rain also favored coffee. Hot weather continued to stress livestock in the north. During June 7 - 13, significant showers fell across central, north-central, and western Mexico. The rain provided much topsoil moisture for corn planting and northern pastures. From June 14 - 20, dry weather returned to the southern Plateau corn belt, slowing corn planting. Significant showers were confined to coastal areas of southwestern Mexico. Farther north, hot, dry weather continued in northeastern Mexico, stressing pastures and livestock. During June 21 - 27, warm, dry weather slowed corn planting and stressed already planted corn across the Southern Plateau Corn Belt. The main area of showers was confined to southern Mexico. Portions of the eastern corn belt received significant rain. The north remained hot and dry. From June 28 through July 4, widespread showers fell across the Southern Plateau, boosting topsoil moisture for corn planting and germination. Scattered light rain provided some relief to drought-stressed pastures in northwest and north-central Mexico. Northeastern Mexico remained dry, stressing rainfed crops. Temperatures averaged above normal across most of Mexico, especially in the north.

After completion of 1998/99 plantings, Canadian rapeseed harvested area is forecast at 5.4 million hectares, up 11 percent from 1997/98. Wheat area is forecast at 10.6 million hectares, down 7 percent, and barley area is forecast at 4.4 million hectares, also a 7-percent reduction. Minor crops including oats, flax, and field peas have increased in area. Weaker world wheat and feed barley prices combined with strong world oilseed demand encouraged farmers to switch crops. A large increase in oilseed crushing capacity in recent years has been favorable for Canadian oilseeds including rapeseed. Weather has been mixed this season and estimated yields for the three crops are near the 5-year averages. Production of Canadian rapeseed, wheat, and barley are currently estimated at 7.0, 24.0, and 13.0 million tons respectively; up 13 percent, down 1 percent, and down 5 percent respectively from last year.

Turkey's 1998/99 wheat and barley production estimates are raised this month due to very favorable weather throughout the growing season. Wheat production is forecast at a record 18.0 million tons, up 1.5 million or 9 percent from last month and up 13 percent from last year. Barley output is pegged at a record 7.8 million tons, up 0.6 million or 8 percent from last month and up 7 percent from 1997/98. Rainfall was excellent throughout Turkey, especially in the Central Anatolia Region, which accounts for about half the crop. For wheat, the sunni bug problems in Southeast Anatolia are reported to be less severe than in previous years. The extent of the damage will be fully known after completion of the harvests in the Southeast and Trace (European) regions.

The European Union (EU-15) is forecast to produce a record grain (wheat, coarse grains, and milled rice) crop of 208.0 million tons, up from 205.2 million in 1997/98. Area is estimated to have decreased slightly from last season to 37.7 million hectares as a decline in coarse grain area more than offset an increase in wheat. Excellent weather has benefitted most of the winter grain crops, while the spring grain crops are off to a good start. Wheat production is forecast at a record 101.1 million tons, up 7 percent from last year. Record wheat output is forecast in France, United Kingdom, and Germany due to increased area and excellent weather which improved yield prospects for the winter wheat crop. Coarse grain production is forecast at 105.2 million tons, down 3 percent from last season's record. Barley and corn area are reduced from last year's level. Barley production is forecast at 52.4 million tons, down marginally from last season due to lower area, but improved yield from 1997/98. Corn output is forecast at 34.9 million tons as reduced area and yield push the crop down 9 percent from last year's record. Rice output is forecast slightly lower than 1997/98 at 1.7 million tons (milled basis).

Frequent thunderstorms provided above normal rainfall to most areas of the Corn Belt, allowing crops to develop well ahead of normal. Locally heavy downpours flooded low-lying fields and eroded hillsides and waterways. As the month ended, many corn fields had uneven stands, with plants in low-lying and poorly drained areas exhibiting stunted growth and discoloration from extended periods of standing in water and soggy soils. Several storm cells produced hail and strong winds that also caused crop damage in isolated areas of the Corn Belt and in the Great Plains. Warm weather ripened the winter wheat well ahead of normal in most of the winter wheat producing States. Dry weather in the central and southern Plains allowed farmers to make rapid progress harvesting, and by the end of the month most of their winter wheat was harvested. In the southern and eastern Corn Belt, the harvest began earlier than normal, and as the month ended, progress was 1 week ahead of the 5-year average. Across the northern Plains and Great Lakes region, above-normal temperatures rapidly ripened the crop which allowed the harvest to begin 2 weeks early in some areas. Hot, dry weather stressed cotton in the Southeast, Mississippi Delta, and southern Plains. Scattered showers and thunderstorms provided temporary relief from the dry conditions in some cotton growing areas, but conditions in most cotton fields deteriorated from the previous month. Peanuts suffered from excessive dryness in the eastern Gulf Coast and southern Plains, but fared better in the mid-Atlantic Coastal Plain. Temperatures remained above normal most of the month in the northern Plains, providing excellent growing conditions for small grains. Dry weather stressed crops in Montana early in the month until rains relieved the drought conditions. The Southwestern States continued to experience below-normal temperatures that slowed crop development, especially in California, where many crops were 1 to 4 weeks behind normal development as the month ended.

In crop areas west of the Urals, a large area of high pressure was centered over the Volga Valley region of Russia during most of June, bringing unfavorably hot, dry weather to most areas of Russia and eastern Ukraine. Drought conditions developed in the Volga Valley, where well-below-normal precipitation continued May's insufficient rainfall pattern in the region. Unfavorable dryness also spread into major winter wheat producing areas of the North Caucasus, the eastern portion of the Central Black Soils Region, and the Volga Vyatsk. In Ukraine, light, if any, precipitation fell in northeastern areas during June, worsening conditions for crop development. The dryness in Russia and eastern Ukraine was accompanied by a heat wave which began around June 10 and persisted through June 22. Highest temperatures were observed in the Volga Valley, reaching 40 degrees C. The adverse heat and dryness in Russia, and to a lesser extent Ukraine, occurred at critical stages of crop development for both winter grains and spring grains. Winter grains were in the reproductive to filling stages of development, while spring grains were in or nearing reproduction. Summer crops such as corn, sugar beets, and sunflowers were in the vegetative stage. Irreversible damage likely occurred to winter grains which were most advanced in development. Furthermore, these unfavorable weather conditions reduced yield prospects for spring grains (oats, spring barley, and spring wheat) and summer crops (corn, sugar beets, and sunflowers). On June 23, a cold front edged slowly eastward across Ukraine and Russia, bringing much cooler weather and some rain to heat-stressed crops in Russia and eastern Ukraine. Little, if any precipitation fell on parched areas of the Volga Valley. Elsewhere, wet weather prevailed over the western and southern Ukraine, Belarus, and the Baltics in June, favoring crop development. However, some of the rain in western Ukraine was locally heavy, creating the potential for some crop lodging. Since early July, cooler weather and scattered showers continued to bring some relief to drought-stressed crops in Russia. However, these showers caused only brief delays in winter wheat harvesting. In crop areas east of the Volga Valley, hot and generally dry weather prevailed in western Kazakstan and the southern Urals region of Russia in June, adversely affecting spring grain (spring wheat, spring barley, and oats) development. On most days during the month, maximum temperatures ranged from 30 to 35 degrees C, with temperatures on some days ranging from the upper 30's degrees C to 40 degrees C. The hot weather was accompanied by very low humidity, causing rapid drying of topsoils. Farther east, near- to above-normal precipitation fell in major spring grain producing areas of Kazakstan and Russia (northern Urals, Western Siberia, and Eastern Siberia), maintaining generally favorable growing conditions for vegetative crops. Temperatures in June averaged 1 to 3 degrees C above normal in these areas, spurring crop growth. Since early July, cooler weather and scattered showers brought some relief to crops in western Kazakstan and the southern Urals. However, unfavorably hot and dry weather spread eastward into central and eastern Kazakstan and Western Siberia, increasing stress on spring grains in or nearing reproduction. Cooler weather and rain are needed soon in these areas to prevent substantial declines in crop-yield potential.

World cotton area and production for the 1998/99 marketing year depend on several factors with cotton prices and those of competing crops playing a crucial role. Cotton production also is influenced by domestic and world financial conditions, government policies, and weather. The Cotlook A-Index represents the price level of international raw cotton offered to the market on a daily basis from several cotton trading countries. Using this index as a reflection of world cotton prices, it shows that cotton prices have declined for the past three years. The most recent peak was the average annual price of US 91.4 cent per pound of lint in 1994/95. For the next three marketing years, the average annual Cotlook A-Index declined. Since August of 1997, the index dropped 21 cents per pound, with this May's price 15 cents below that of May 1997. This decline in prices supports the current outyear forecast of 86.3 million bales from an area of 32.7 million hectares. The outlook is below the 90.8 million bales and 33.4 million hectares currently estimated for 1997/98. Generally, a direct relationship exists between cotton area, production, and the price index for the previous year. However, output also depends on the price levels of other crops in relation to the price of cotton, production costs, difficulties encountered at the onset and during the growing season, and government policies. The following narrative highlights the major producing countries and indicates the environment under which cotton cultivation began and the direction of production for 1998/99. (Chart)

United States: Cotton production is forecast at 15.0 million bales, down 3.8 million or 20 percent from 1997/98 as area and yield decline sharply from last year. As of July 12, eighty percent of the crop had entered the squaring stage and 45 percent had begun to set bolls. Above-normal temperatures accelerated squaring in the Mississippi Delta cotton-producing States. Searing heat stressed the crop in several areas, where soil moisture levels were very low. In Texas, many dryland cotton fields failed and some were replanted to alternative crops. Cool weather slowed the progress of the California cotton crop.

China: China's cotton production for 1998/99 is forecast at 4.25 million tons, or 19.5 million bales, a decline of about 8 percent from last year. The area estimate of 4.5 million hectares is in line with the latest economic circular released in May 1998 by of China's State Statistical Bureau and is unchanged from last year. The timing of the government announcement of lower procurement prices was too late to affect planting intentions; in addition, cotton still offers a favorable return relative to grains and vegetables. The yield forecast of 943 kilograms per hectare is below last year's record level due to an expected return to normal weather, but is slightly above the 3-year average as area continues to shift from lower- to higher-yielding regions.

India: Cotton production for 1998/99 is projected at 12.5 million bales, up 0.6 million from last year's insect and weather-reduced crop. There also were some shifts from finer count to coarser count varieties. Higher cotton prices during 1997/98, vis-a-vis those of competing crops like rice, tobacco, chillies, and coarse grains, are likely to result in an increase in cotton area in 1998/99. However, farmers in Punjab, Haryana, and Andhra Pradesh experienced crop losses due to untimely rains and pest infestations last year. In Andhra Pradesh and Punjab, growers have shifted land away from cotton into rice and tobacco, particularly in the non-traditional cotton growing regions. Thus, area increases this year will be limited to about 0.1 million hectares. There also has been a marked increase in the planting of the Bengal Deshi variety as well as a shift away from the more traditional medium staple to shorter staple varieties which can survive pest attacks.

Pakistan: The Pakistani cotton crop for 1998/99 is forecast at 7.5 million bales, up more than 10 percent from recent Ministry of Agriculture estimates for the 1997/98 crop. Farmers in the cotton growing provinces of Punjab and Sindh are planting cotton on an estimated 2.95 million hectares with harvested area forecast to be slightly lower. A marginal shift from cotton to rice has been reported in a few pockets of Punjab Province. Of the total planted area, about 2.3 million hectares are expected in Punjab and 620,000 hectares in Sindh Provinces. Yields in Punjab are forecast 17 percent higher than last year. This is based on a partial recovery from yield losses experienced last year due to the excessive rainfall in October. For 1998/99, a 1-percent decrease in area is anticipated due to a continued potential for white fly infestations, persistent fear of rain damage, and more favorable returns from rice, corn, and other crops. Despite this, some farmers planted large blocks of spring cotton because, in many of the these areas, cotton is the only choice due to limited availability of irrigation water.

Turkey: Cotton production in Turkey for 1998/99 is forecast at 3.4 million bales, down 0.1 million from last year's weather-reduced crop. Unusual cool, wet weather is having a significant negative effect on Turkey's 1998/99 production prospects. Sources estimate that as much as 30 percent of the Aegean crop has been re-seeded and prospects for recovery do not appear favorable. Cool weather and flooding in other cotton-growing regions, particularly the southeast, also could have a negative effect, though problems in these areas reportedly have not been as severe. Late planting increases the probability of a rain-damaged harvest, which has been the case for the past two seasons. Sources are hesitant to quantify losses at this early stage, and the Cotton Consultancy Council (CCC) has postponed its release of 1997/98 and 1998/99 country-wide estimates from June until August. Preliminary reports indicate a 15-percent decline in output for the Aegean region due to reduced area and yield. The overall unofficial consensus is that 1998/99 output will reach 3.4 million bales, a 10-percent decline from the CCC's November estimate of 3.8 million.

Australia: Australian cotton production for 1998/99 is forecast at 2.6 million bales, 0.5 million below last year's record crop of 3.1 million. The area for 1998/99 is forecast to decrease to 390,000 hectares from last year's 434,000. The area of irrigated cotton is forecast at 317,000 hectares, about 11 percent below 1997/98. New environmental flow rules introduced by the state government of New South Wales to reform the issuance of water licenses has resulted in water reductions in most cotton growing regions in the state. Water availability is expected to be the limiting factor for cotton production next year.

Argentina: Cotton production in Argentina for 1997/98 is forecast at 1.7 million bales, up 0.4 million from last year, but below the record 1.9 million bale crop produced in 1995/96. The increase in output for 1998/99 is based on the anticipated recovery of yields which suffered from serious weather problems throughout last year's growing season. Argentine farmers have until mid-October to sow cotton, leaving producers a wide window for making planting decisions. If international cotton prices are attractive in the ensuing months, planted area may rise significantly.

Brazil: Cotton production for 1998/99 in Brazil is projected at 1.8 million bales, up slightly from last year's weather-reduced crop. Yields for 1998/99 are forecast around 460 kilograms per hectare (lint cotton) due to the use of improved seeds, better crop management, and the increasing contribution to total production by the states of the Center-West Region (notably Mato Grosso). Total area planted to cotton for 1998/99 should remain stable at 850,000 hectares. Growers in the Center-West are likely to continue increasing area planted to cotton, especially in Mato Grosso which currently has excellent yields and crop quality. Producers in Goias will likely decrease area planted to cotton and shift to corn production, due to the poor cotton outturn in 1997/98. Farmers in Parana also are forecast to decrease total area planted to cotton as money made available by the state government for small cotton growers will be reduced for the 1998/99 crop.

Egypt: Over the past three years, the area planted to cotton in Egypt has fluctuated because of inconsistent government policy affecting the minimum guaranteed procurement price for cotton. In 1998/99, cotton production and area are projected to total about 1.2 million bales from 0.3 million hectares, down 23 and 20 percent, respectively, from last year. The decline is attributed to farmer reluctance to plant cotton without some indication from the Government regarding the minimum procurement price for the 1998/99 crop. With no announcement from the Government, many farmers have decided not to plant cotton, apparently having concluded that market prices would in fact drop significantly below the last year's level. Two other factors also may have influenced farmer decisions not to plant cotton for this year. The first was the implementation of Law 96, which allowed land owners to rent their land at market rates, thus ending a 30-year period of rent control. The second was the elimination of the pesticide subsidy. Together, these factors have made cotton production less attractive compared to other crops such as wheat, corn, or rice.

Mexico: Mexican cotton production for 1998/99 is forecast at 1.0 million bales, slightly more than last year's output. The 1998/99 production forecast equals the average level of one million bales that Mexico produced in the 1980's and as recently as 1996/97. The Mexican cotton industry indicates that despite strong demand for cotton, Mexican farmers are hesitant to plant more than the estimated 220,000 hectares for the 1998/99 crop because of less risk and higher profits for other crops such as corn or sorghum. In addition, international prices continue to be unattractive and the availability of price competitive U.S. cotton with favorable credit terms continues to be viewed by Mexican growers as an insurmountable hurdle for increased domestic production. The Mexican cotton industry claims that their cotton can be competitive with the U.S. crop only with higher international prices and higher production subsidies from the Government of Mexico. Currently, cotton producers are receiving subsides from two different programs: the PROCAMPO support program, which covers cotton and nine other crops; and, the new Rural Alliance Program. This new program, announced during the first week of November 1997, reflects the Mexican Agriculture Secretariat's commitment to promote cotton production despite severe budget constraints.

Paraguay: Cotton production in Paraguay for 1998/99 is forecast at 400,000 bales, slightly above last year's level of 350,000 bales. Several factors will affect 1998/99 production including the continued availability of credit, technical assistance, and availability of inputs. Local currency has recently lost value, driving the cost of imported inputs higher and making it difficult for growers to obtain necessary materials from abroad. Another important concern is the availability of seed. Some of the seed producing regions in Paraguay had declines in production in 1997/98 due to the recent heavy rainfall and flooding. This may cap production potential, and to fully meet next year's needs, some planting seeds will likely need to be imported.

Uzbekistan: Production for 1998/99 in Uzbekistan is forecast at 5.0 million bales, 0.3 million below last year. This year's lower forecast is supported by heavy rains at the end of April and first half of May which seriously delayed vegetative growth of the cotton crop in some districts. In addition, the plants were weakened by an unusually cool June, which often deceases potential yield. Approximately 1.5 million hectares are planted to cotton in Uzbekistan for 1998/99. Of the total, roughly 420,000 hectares were planted under plastic this season compared to 219,000 hectares in 1997/98. This is a method where the soil is covered after sowing with a perforated polyethylene film. This protects seeds and allows room for seedlings to grow offsetting some of the yield loss due to adverse weather. The Ministry of Agriculture and Water Resources reported that yields for cotton sown in this manner were 10.3 percent higher than traditionally sown cotton in 1997/98.

Turkmenistan: The production potential for the 1998/99 cotton crop in Turkmenistan is officially estimated by the Government at 1.4 million bales, assuming adequate fertilizer supplies and favorable weather. The Government has taken steps to provide some production credit--the lack of which was a major problem last year. As a result, farmers reportedly are more satisfied than they have been for the past several years and planted area has expand slightly, to 475,000 hectares. The official target for 1998/99 is reported to be 575,000 hectares. Reports indicate that the bulk of the crop was planted on time and the weather, which had been cool and damp, is improving. However, given past difficulties with adequate inputs, irrigation, machinery, and harvest weather, an output of 1.0 million bales is more realistic. Cotton production is controlled by the State and the already low procurement prices have not been increased for the past three seasons.

Year	Harvest Area	Yield	Production
	(1,000 Ha)	(Kg/Ha)	*(1,000 Bales)**
1987/88	30,863	572	81,095
1988/89	33,817	544	84,423
1989/90	31,557	550	79,735
1990/91	33,161	572	87,071
1991/92	34,819	599	95,748
1992/93	32,635	550	82,493
1993/94	30,704	544	76,732
1994/95	32,180	579	85,609
1995/96	35,933	563	92,977
1996/97	33,766	577	89,408
1997/98 p	33,392	592	90,803
1998/99 Forecast	32,687	575	86,324
5-year Average	33,195	571	87,106

Ronald R. Roberson, Cotton Chairperson
Phone: (202) 720-0879
E-mail: roberson@fas.usda.gov

The following material is based on a report by U.S. agricultural counselor's office in Beijing, China. China's cotton production for 1998/99 is forecast at 4.25 million tons, or 19.5 million bales, a decline of about 8 percent from last year. The area estimate of 4.5 million hectares is in line with the latest economic circular released in May 1998 by China's State Statistical Bureau and is unchanged from last year. The timing of the government announcement of lower procurement prices was too late to affect planting intentions; in addition, cotton still offers a favorable return relative to grains and vegetables. The yield forecast of 943 kilograms per hectare is below last year's record level due to an expected return to normal weather, but is slightly above the 3-year average as area continues to shift from lower- to higher-yielding regions.

Production vs. Procurement: There continues to be a large gap between the amount of cotton produced and the amount of cotton procured, based on official data. As recently as 1990 the Government procured 90 percent of domestically produced cotton. In 1996, the amount procured as a share of the amount produced has dropped sharply to under two-thirds. The official procurement price was raised sharply in 1994 and then again in 1995. In the first three years of this decade, farmers may have been selling more of their cotton directly to mills in order to get a better price than the Government was offering. However, this practice should have been reversed after 1994 when procurement prices were raised. Instead, government procurement continued to decline.

Part of the reason for the gap between the amount of cotton produced and the amount procured may be due to inflated production estimates. Some cotton production data are still collected through the old comprehensive administrative reporting system which was part of the planned economy. Under the comprehensive system, production is reported by officials at the village level and accumulated at each higher level until it eventually reached the national level. At each level, there may be incentives to inflate production estimates. However, the State Statistical Bureau also compares the accumulated estimates with other information, such as procurement data, and may make adjustments. Under the new system, production is estimated using statistical sampling methods conducted by trained officials who work for the central government and produce statistics that are less subject to local biases. The Government is continuing its shift from the old to the new system in the gathering of production data, and current plans call for adopting these newer methods for making estimates of cotton production starting in 1998.

Another reason for the growing gap between cotton production and procurement is a lack of funds on the part of China's Cotton and Jute Corporation to buy all the cotton farmers wish to sell. Funds collected from the textile industry for ginned cotton are used to finance purchases of the next year's crop. At present, the textile industry owes the Government about RMB 15 billion (US$1.8 billion) for cotton from past harvests. Finally, the cost of holding cotton after it has been ginned is borne primarily by the Government, and with growing stocks and stagnant demand, farmers are sometimes being turned away when they bring their cotton to the Government for purchase.

The Future of Cotton Production in China: Although cotton production is forecast to decline in 1998, it is not certain if this reduction will continue, and if so, by how much. The Government predicts that farmers will grow less cotton in regions where yields have been low due to cotton pests and diseases. However, the Government also predicts that planted area will hold steady in some areas and increase in others, such as Xinjiang, where yields are better.

Four factors are likely to determine future cotton production trends in China. Principle among these is the policy debate whether or not fibre production should be reduced in order to permit more production of food. There is a strong bias that food production should have greater priority. Secondly, is whether and how quickly, alternative sources of income can be developed for China's rural population. Chinese officials and policy analysts are quick to point out that guaranteed procurement of cotton at guaranteed prices has given cotton an important function in maintaining farmers' incomes and social stability. Further, the gap between policy and reality with respect to guaranteed cotton procurement appears to be widening not shrinking. Therefore, the income stabilizing function of cotton production is declining.

The return to cotton production relative to other crops is another factor and will become more important as China's agricultural economy shifts away from that of a planned economy. The establishment of price bands rather than fixed prices for cotton and granting farmers more discretion over planting decisions are two important steps in the direction of making cotton production more sensitive to market forces. It is estimated that the cost of fertilizer and insecticides needed to grow cotton are at least 25 times higher than for other crops. Further, the need for frequent applications of these inputs and other crop management practices (e.g., transplanting seedlings and the use of plastic) tie cotton farmers to the farm more so than other crops, thereby reducing opportunities for off-farm employment.

Finally, government policies regarding cotton imports will affect China's cotton production. If the Chinese Government continues to limit cotton imports, this will prolong the present price structure in which Chinese cotton prices are above world market levels. In the long term, higher prices for raw cotton will make it impossible for the Chinese textile industry to compete internationally. China thus has three options: permit free imports and the movement of domestic cotton prices in line with international cotton prices; allow imports and provide subsidies to domestic cotton producers; or, restrict imports to keep domestic prices high and eventually price Chinese textiles out of world markets.

For additional information contact:
Paulette Sandene, Regional Analyst
Phone: (202)690-0133
E-mail: sandene@fas.usda.gov

South America is forecast to produce 48.8 million tons of soybeans for 1998/99, down 7 percent from last year's record of 52.6 million, making it the region's second-largest crop on record. The 7-percent decline from last year is the result of a forecast decrease in area of 1 percent and a return to more normal yields. Both Argentina and Brazil had record yields in 1997/98 due to near-ideal growing conditions, in particular, to above-average rainfall associated with El Nino. The slight decline in area is largely due to grower shifts toward planting corn and other crops in Argentina. As a group, South American countries are second only to the United States in soybean output and are projected to account for 34 percent of the world's production in 1997/98. Brazil, Argentina, Paraguay, and Bolivia, account for over 99 percent of South America's production. (Chart)

Brazil: Brazil is South America's largest soybean producer and the world's second-largest after the United States. Soybean production is forecast at 29.5 million tons, down 1.2 million or 4 percent from last year's record crop. Area is forecast unchanged at 13 million hectares, but yield is projected to decline somewhat from last year's record. Lower prices are expected in the coming year as the 1997/98 year brought record world production. For this reason area is not projected to increase as was the case in previous years.

The forecast production decrease for the coming year runs counter to a trend of increasing output that is projected to continue in Brazil over the long term. The present year forecast not withstanding, production is expected to continue to increase in coming years due to the opening of new land to soybeans, improvements in infrastructure, better crop management, and adoption of new higher-yielding varieties. Soybean cultivation is the primary force underlying the expansion of the Brazilian agricultural frontier. As transportation corridors open up lowering shipping costs, more land will be incorporated to soybean production in states such as Mato Grosso, Rondonia, Maranhao, Piaui, Tocantins, and Para. As an example of the expansion, in the 1996/97 marketing year 320,000 tons of soybeans were exported via the Northwestern Corridor (the waterway which connects the Madeira River to the Amazon River port of Itacoatiara). This was the corridor's first year of operation . For the 1997/98 marketing year, 600,000 tons of soybeans are planned to be exported via the Northwestern Corridor. In addition, the Center-North Corridor, which connects eastern Mato Grosso to the port of Ponta da Madeira in Sao Luis, Maranhao, is expected to begin operations this year with exports expected to reach 40,000 tons. Improvements in ports as well as the privatization of railways also should stimulate soybean expansion over the next five years, since reductions in freight costs will make Brazilian soybean farmers increasingly more competitive in international markets. New technologies such as genetically-engineered varieties resistant to insects and herbicides may make soybean production more profitable should they receive government approval and become accepted by Brazilian farmers as readily as they have in Argentina.

In Brazil, soybean planting begins as early as September and continues through January. Most of the crop is planted from mid-October through December. Brazilian farmers closely monitor international prices and soybean production in major producing countries such as the United States, and production in these competing countries affects planting decisions and results in increases or decreases in area. Soybeans are grown in nearly all of Brazil's states, but the largest soybean-producing states are Parana, Mato Grosso, and Rio Grande do Sul, each accounting for just over 20 percent of total production.

Argentina: Argentina is the second-largest soybean producer in South America and the fourth-largest producer in the world. Soybean production in Argentina for 1998/99 is forecast at 15.0 million tons, down 16 percent from last year's record crop of 17.9 million. Harvested area is forecast at 6.5 million hectares down 4 percent from last year's record area of 6.8 million. Higher expected returns from corn are a primary reason for the reduction in projected soybean area. Abundant El Nino-associated rainfall resulted in record yields for the 1997/98 crop. Therefore, as the El Nino subsides, yields in 1998/99 are expected to return to more normal levels.

Argentina has been at the forefront in the use and acceptance of biotechnology products. This has been especially true for soybeans, with these products now in their second year of commercial use. Adoption rates match those of the United States. A reported 1.5 million hectares out of about 7.1 million were planted to these varieties in the 1997/98 crop year. The rapid expansion is expected to continue with new varieties and crosses being targeted at local growing conditions. Use of shorter-season varieties continues to increase allowing growers to harvest their crop earlier, perhaps gaining an advantage through higher prices which are more common in the beginning of the marketing season.

In Argentina, soybean planting begins in November and continues through January. The harvest takes place from April through June. Though soybeans are grown over a wide area of Argentina, the most important region encompasses parts of the Provinces of Santa Fe, Buenos Aires, and Cordoba, accounting for over 90 percent of soybeans produced. Soybeans are grown in rotation with other summer crops such as corn, sorghum, and sunflowers and can be grown as a second crop after wheat. Double cropping is especially common in the rich-soil region of northern Buenos Aires and southern Santa Fe.

Paraguay: Paraguay, the third largest soybean producer in South America, produces about 6 percent of South America's soybeans. It is the sixth largest producer in the world, roughly tying Canada. In 1998/99, Paraguay is forecast to produce a record 2.9 million tons, up 7.4 percent from last year's crop. Area for 1998/99 is forecast at 1.3 million hectares, unchanged from last year. Analysts believe that future increases in production will result primarily from increased yields coming from the adoption of new technologies, although some continued land expansion is expected if justified by prices. Overall, only a limited amount of additional land is believed to be suitable for soybean production. Farmers also could reduce the amount of corn planted when returns on soybeans are relatively high, but corn production needs to be kept as part of the crop rotation to maintain soil quality. Soybeans play an important role in the agricultural scheme in Paraguay, commonly following wheat in the crop rotation cycle. In fact, farm organizations report that all wheat area, some 250,000 hectares annually, is followed by soybeans. Given Paraguay's nearly year-around growing conditions, this makes a practical and profitable rotation. To encourage soybeans, credit has been made available from the National Development Bank as well as private banks so that farmers will be able to afford inputs and other costs until harvest returns become available.

Soybean planting begins in October and continues through December. The harvest season begins in April and extends through June. The primary growing regions are in eastern and southern Paraguay, east of the Paraguay River. Soils and climate are similar to the Brazilian growing areas of western Parana and Rio Grande do Sul.

Bolivia: Bolivia is the fourth largest soybean producer in South America and accounts for about 3 percent of South America's output. Production for 1998/99 is forecast at 1.3 million tons, down marginally from last year. Area for 1998/99 is forecast unchanged from last year's record of 630,000 hectares. Soybean production has grown rapidly over the past 10 years as a result of international development loans for nontraditional agricultural products and other incentives aimed at expanding agricultural exports. While these programs help subsidize transportation and pay rebates for exports, an underdeveloped infrastructure and a lack of available capital tend to limit expansion.

In Bolivia, there is a wet-season crop and a dry-season crop. For the wet-season crop, which accounts for at least 80 percent of total production, planting begins in November with the harvest in April. For the smaller dry-season crop, planting begins in May or June with harvesting taking place in September and October.

Year	South America	Brazil	Argentina	Paraguay	Bolivia	Others
1989/90	17,875	11,550	4,950	980	173	222
1990/91	15,782	9,750	4,750	890	195	197
1991/92	15,717	9,700	4,800	900	193	124
1992/93	16,875	10,625	4,900	980	240	130
1993/94	18,377	11,440	5,400	1,050	330	157
1994/95	19,022	11,680	5,700	1,100	393	149
1995/96	18,600	10,950	5,980	1,100	445	125
1996/97	19,828	11,800	6,200	1,200	547	81
1997/98	21,786	13,000	6,800	1,300	630	56
1998/99 July	21,529	13,000	6,500	1,300	630	99

Year	South America	Brazil	Argentina	Paraguay	Bolivia	Others
1989/90	33,270	20,340	10,750	1,575	230	375
1990/91	29,287	15,750	11,500	1,300	392	345
1991/92	32,285	19,300	11,150	1,300	308	227
1992/93	36,336	22,500	11,350	1,750	513	223
1993/94	39,917	24,700	12,400	1,800	735	282
1994/95	41,723	25,900	12,500	2,200	810	313
1995/96	40,065	24,150	12,430	2,400	900	185
1996/97	41,907	26,800	11,200	2,771	1,000	136
1997/98	52,647	30,700	17,900	2,700	1,260	87
1998/99 July	48,796	29,500	15,000	2,900	1,250	146

World wheat production for 1998/99 is forecast at 601.4 million tons, down 9.0 million or 1 percent from last year's record level. Harvested area is forecast at 225.3 million hectares, down 2 percent from 1997/98. The average world yield is forecast at a record 2.67 tons per hectare, up 1 percent from last season. The United States, Canada, China, Eastern Europe, Russia, Ukraine, Kazakstan, India, and Argentina are forecast to produce less wheat this year versus last year. Wheat production in the European Union is forecast at a record level, while Australia and Morocco are forecast to produce more wheat than 1997/98. (See table 3 of this circular for area, yield, and production for individual countries and regions.)

United States: Wheat production in the United States for 1998/99 is forecast at 68.6 million tons, down 0.1 million or less than 1 percent from last year. Harvested area is forecast at 24.0 million hectares, down 1.8 million or 7 percent from 1997/98 and the lowest planted area in 10 years. Yield is forecast at a record 2.86 tons per hectare, up 7 percent from last year's level and 13 percent above the 5-year average of 2.52 tons. Winter wheat production is estimated at 51.7 million tons, up almost 1 percent from last year. Winter wheat area is down nearly 3 percent from last season, but yield is at a record level. According to the National Agricultural Statistics Service (NASS), durum wheat harvested area is forecast 15 percent higher than 1997/98 at nearly 1.5 million hectares, while other spring wheat harvested area is forecast down 20 percent from last year at 6.0 million hectares. The increase in durum is attributed to strong demand for durum wheat, while the decrease in winter and spring wheat is mainly due to more attractive prices for alternative crops. Durum production is forecast at 3.4 million tons, up 46 percent from last year and the highest since 1982/83. As of July 5, NASS reported that winter wheat harvest reached 69 percent of completion in the 19 major producing states, compared with 46 percent in 1997/98, and the 5-year average of 50 percent. Also, NASS reported that 67 percent of the spring wheat was in excellent to good condition; 27 percent fair; and 6 percent poor to very poor in the 5 major producing spring wheat states. For the same period last year, 48 percent of the spring wheat was in excellent to good condition; 36 percent fair; and 16 percent poor to very poor.

Canada: Wheat production in Canada for 1998/99 is forecast at 24.0 million tons, down about 1 percent from last year's below average crop. Rotation into rapeseed, unfavorable weather in parts of the Prairie Provinces, and weaker world wheat prices at planting compared to last season caused growers to reduce wheat plantings to an estimated 10.6 million hectares, down 7 percent from 1997/98. According to the June 30 Statistics Canada report, spring wheat area is the lowest since 1972/73, while durum wheat area is record high. Crop yield prospects are forecast at a near average level of 2.26 tons per hectare. An unseasonably dry winter coupled with a relatively dry and cool May through early June across the Prairie Provinces hindered normal crop development. From late May into early June, below freezing temperatures throughout Manitoba and sections of Saskatchewan and Alberta reportedly caused only minor damage to emerged spring grains. Since mid-June, beneficial rain (to the point of excessive in some areas) relieved the prolonged dryness across the Prairies, although there are still some dry pockets. Early-July reports from the eastern parts of the Prairies indicate that in some areas disease may become a problem due to the excessive rainfall. However, in general, temperature and rainfall throughout July are critical in determining yield potential. In Ontario, where most of Canada's winter wheat is grown, area is forecast to return to a more normal level of 287,000 hectares, up 58 percent from last season's reduced area. Crop development has been generally favorable and production is expected to be up from last year. Winter wheat comprises about 5 percent of total-wheat.

European Union (EU): Production in the EU for 1998/99 is forecast at record 101.1 million tons, and up 6.6 million or 7 percent from 1997/98. Yields are projected at 5.87 tons per hectare, an increase of 7 percent over last year. Area is forecast at a record 17.2 million hectares, up slightly from last season as stronger returns relative to other crops favor wheat plantings. In France, the wheat crop is forecast at a record 36.0 million tons, slightly above the 1996/97 record level of 35.9 million. Record wheat area of 5.2 million hectares and reports of bumper yield potential support higher production. Favorable precipitation across northern France has been beneficial for the crops. Durum yields are expected to be up from last year's drought reduced levels. Production in the United Kingdom is forecast up nearly 13 percent from last year to a record 17.0 million tons. Yield is forecast at the second highest level at 7.94 tons per hectare due to excellent growing conditions that have prevailed throughout the growing season. Harvested area is slightly above last season's level at 2.1 million hectares. In Germany, crop conditions have been excellent with production forecast at a record 21.0 million tons, up 6 percent from 1997/98. A record harvested area of 2.8 million hectares and record yield of 7.47 tons per hectare boosted the production forecast this season.

EASTERN EUROPE: For Eastern Europe as a region, wheat production is forecast at 32.8 million tons, down 2.1 million or 6 percent from 1997/98. Area is forecast at 9.5 million hectares, down 5 percent from last year. In Poland, wheat area is similar to last season, but production is forecast higher at 8.6 million tons due to generally favorable weather. In the Czech Republic, production is forecast higher at 4.0 million tons due to an increase in area, although prolonged dry weather, from April into June, has kept yield at a near average level of 4.55 tons per hectare. In Bulgaria, production is forecast at 3.2 million tons, as harvested area and yield are projected near last year's level. In Romania, planting delays caused by cold weather and an early snowfall reduced area 18 percent, to 2.0 million hectares. Generally favorable weather in May and June support an above average yield and production of 5.7 million tons. However, floods and hail in parts of Romania during mid-June caused minor wheat damage. In Hungary, production is forecast at 4.5 million tons, down 15 percent from last year due to reduced area and yield. A dry fall and winter hindered crop development, but May and June rainfall was adequate. Yield is projected at a near-average level. In the former Yugoslavia, wheat area is estimated slightly below 1997/98. Wheat output is forecast at 4.6 million tons, down 8 percent from last year's bumper level due to reduced inputs. The weather has been generally favorable.

Australia: Wheat production in Australia during 1998/99 is forecast at 20.0 million tons, up 1.5 million tons or 8 percent from the 1997/98. Harvested area is forecast at 11.1 million hectares, up 2 percent from last year due to declining feed grain prices and excellent soil moisture at planting time. Yield estimated at 1.80 tons per hectare, is 5 percent above last season and 3 percent higher than the 5-year average. Higher yield is anticipated with the widespread rain across the winter grain regions of Australia in April and May providing an early start to the season with excellent planting conditions. Plant development is progressing well with adequate June rains in most growing regions.

India: Wheat production in India during 1998/99 is forecast at 67.0 million tons, down 2.3 million or 3 percent from the record output of 69.3 million in 1997/98. The harvested area of 25.6 million hectares is forecast to have decreased 1 percent from last year. Yield is forecast at a robust 2.62 tons per hectare, down 3 percent from 1997/98. The area and yield decreases are the result of heavy rains in November and December with most of the weather related losses confined to the States of Punjab and Haryana. However, the weather improved with adequate rainfall and cool temperatures during grain development. These conditions were followed by warmer temperatures and thereby provided a good finish. Surprisingly, the entire harvesting and marketing operations took place in the relatively short time span of one month. The dry, hot conditions in the wheat belt during harvest accelerated these activities, which typically last two or more months.

Argentina: Wheat production in Argentina for 1998/99 is forecast at 11.5 million tons, down 22 percent from last year's crop. Harvested area is forecast at 4.8 million hectares, down 0.9 million or 16 percent from last season. Poor initial planting conditions, the slow rate of planting seed sales, and less favorable output prices support a decline in harvested area. Also, lower prices, some $20 per ton less than at the same time last year, are expected to result in reduced fertilizer applications as farmers attempt to minimize production costs. Time remains in the planting season and final planted area could be higher or lower than the current forecast. Yield is projected at 2.40 tons per hectare, or 7 percent below last season's record level. Harvesting begins in late-November in the northern regions and proceeds south through January.

China: Wheat production in China for 1998/99 is forecast at 118.0 million tons, down 4 percent from last year's record output, but still the second-largest crop in its history. Area is forecast down slightly to 29.8 million hectares, and yield is projected to reach 3.96 tons per hectare, higher than the 5-year average, but lower than the record of 4.10 tons set in 1997/98.

About 90 percent of China's total wheat output is winter wheat. Prospects for the 1998/99 winter wheat crop are favorable. Dry weather in early autumn 1997 caused planting delays and reduced tillering, but timely precipitation during the winter improved moisture levels and mild temperatures in February led to early emergence and rapid vegetative growth. A cold snap in mid-March hurt yield in southern parts of the North China Plain, but yield prospects were boosted by a favorable combination of unusually warm temperatures and abundant rainfall in April and May. Dry weather in mid June aided harvesting efforts, especially in the Yellow River Valley where rainfall had been unusually heavy in May. Winter wheat harvesting was fully underway by early June on the North China Plain and was essentially complete by the end of the month.

Spring wheat area is forecast to be similar to last year and good yields are forecast at this time. Planting was completed in April and the weather has been favorably warm and moist during the growing season. Heading will occur in June and harvesting will start in late July and continue through August.

Russia: Wheat production in Russia for 1998/99 is forecast at 35.0 million tons, down 9.2 million or 21 percent from last year. Wheat area is forecast at 25.9 million hectares, down slightly from 1997/98. Persistent dryness prevailed in the Volga Valley and adjacent areas during May and June, accompanied by extremely high temperatures during mid-June. The hot, dry weather reduced winter wheat yield prospects in areas where the crop was in the vulnerable reproductive or grain-fill stages. Conditions for spring wheat are generally favorable, although the drought extended into the western fringe of the spring wheat production zone, reducing potential yields in eastern Volga Valley and the Urals. Total wheat yield is projected at 1.35 tons per hectare, down 20 percent from 1997/98. Spring wheat comprises about half of Russia's total wheat crop.

Ukraine: Wheat production in Ukraine for 1998/99 is projected at 16.5 million tons, down 1.9 million or 10 percent from last year. Area is forecast to fall to 5.9 million hectares, down 0.6 million or nearly 10 percent because of wet autumn weather and fuel-availability problems. Wheat yield is forecast at 2.80 tons per hectare, roughly matching last year's level, but 6 percent below the 5-year average. The weather has been generally favorable this spring except in eastern Ukraine where hot, dry weather has negatively affected yield. In Ukraine, as in Russia, farmers continue to struggle with cash shortages which limit the application of fertilizers and plant-protection chemicals, resulting in reduced yield and lower quality.

Kazakstan: Wheat production in Kazakstan for 1998/99 is estimated at 8.0 million tons, down 1.0 million or 11 percent from last year. Area dropped 1.5 million hectares to an estimated 10.0 million, due chiefly to a shortage of capital, seed, and operational machinery. The prospects for improved yield is not promising: the quality of the sowing seed was poor and fertilizer application rates are forecast to remain near last year's reportedly all-time low. Yield is forecast near last season's level of 0.80 tons per hectare. Early-season moisture conditions were generally favorable, although plantings in western Kazakstan-- a relatively minor growing region-- have felt the impact of May and June drought. Over 90 percent of the wheat area in Kazakstan consists of spring wheat.

Algeria: The 1998/99 wheat crop in Algeria is forecast at 1.5 million tons, up 0.6 million or up 58 percent from last year's drought-reduced crop. Harvested area is forecast at 1.5 million hectares, up 50 percent from 1997/98. The 1998/99 crop is characterized as an average crop as wheat benefitted from significant rainfall in the eastern-growing region; however, drought in the western areas reduced production. Nearly 70 percent of the total area sown to wheat is durum, which is primarily grown in eastern and central Algeria.

Morocco: The wheat output for 1998/99 is forecast at 4.0 million tons, up 1.7 million or 73 percent from the 1997/98 drought-affected crop. Above-normal rainfall in Morocco's northern growing regions encouraged widespread planting of the wheat crop and allowed producers to achieve their planting intentions of 3.1 million hectares. However, insufficient precipitation since February diminished soil moisture reserves and reduced yield prospects to a modest 1.29 tons per hectare. The majority of the wheat crop is grown in the northern growing areas.

Tunisia: Wheat production in Tunisia for 1998/99 is forecast at 1.2 million tons, up 0.3 million or up 33 percent from the previous season's poor crop. Tunisian farmers monopolized on abundant early season rainfall, significantly increasing plantings over last year's level's. Area reached nearly 1.0 million hectares. Scattered, light precipitation throughout the growing season led farmers to produce an average crop. Yield is estimated at 1.26 tons per hectare, which is near the 5-year average. Note that in Northwest Africa (Algeria, Morocco, and Tunisia), wheat harvest is virtually complete.

Timothy Rocke, Grains Chairperson
Telephone: (202) 720-1572
E-mail: rocke@fas.usda.gov

Brenda Pressnall, Northwest Africa Analyst
Telephone: (202) 690-0139
E-mail: pressnall@fas.usda.gov

John Turner, Argentina Analyst
Telephone: (202) 690-0138
E-mail: turnerj@fas.usda.gov

Paulette Sandene, China Analyst
Telephone: (202) 690-0133
E-mail: sandene@fas.usda.gov

Jim Crutchfield, India and Australia Analyst
Telephone: (202) 690-0135
E-mail: crutchfield@fas.usda.gov