February 2000
Foreign cotton area for the 2000/2001 season depends on
several factors with cotton prices and those of competing crops
playing a crucial role. Domestic and world financial conditions
also influence foreign cotton area along with 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. Generally, a very strong
direct relationship exists between cotton area and this price
index for the previous year. During the first six months of the
1999/2000 marketing year, the index dropped nearly 3.5 cents to
47.6 cents per pound, 7 cents below the January 1999 price. This
factor alone suggests that foreign cotton area in 2000/2001 may
drop below the 26.8 million hectares estimated for 1999/2000.
However, area shifts also depend upon the price level of other
crops in relation to the price of cotton and expected profit
margins in comparison to these other crops. On average, for the
past five years, corn, wheat, rice, and soybeans have been good
alternatives to cotton, as cotton prices have fallen faster than
these crops. The relative stronger prices of competing crops
point to a continued downward slide in cotton area. However,
government policy in either the form of price supports, other
incentives, or inducements can alter the decline in area. With
these factors affecting area, preliminary indications are that
foreign cotton area in 2000/2001 could range from 26.0 to 27.0
million hectares, compared with an estimated 26.8 million for
February 2000.