FEATURE COMMODITY ARTICLES
2000/01 Foreign Cotton Area Likely to Decrease
Foreign cotton area for the 2000/01 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 1999 Januarys price. This factor alone suggests that foreign cotton area in 2000/01 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 2000/01 could range from 26.0 to 27.0 million hectares, compared with an estimated 26.8 million for February 2000. The low end of the forecast range considers the effects of higher competing crops prices, unfavorable weather, and financial problems. The high-end of the forecast range infers the advantageous effect of weaker prices for competing crops, potential favorable weather, and supportive government policies.
The following table and graph illustrate area, yield, and production estimates for 1989/1990 through 1999/2000 and an area forecast only for 2000/01. The price line on the graph shows an average annual market year price beginning in 1991/92, and includes an average price from August-January for 1999/2000. (See graph)
Foreign Cotton Area, Yield, and Production
The following country reports are based on field surveys received in early January 2000 from U.S. agricultural counselors and attaches, together with information from USDA Washington analysts. The first official USDA forecast of U.S. and foreign cotton production and area for 2000/01 will be issued in May. Individual country estimates for area, yield, and production will be released in July.
China: Officially, the Ministry of Agriculture (MOA) has stated that 2000/01 production will be 15.0 million bales, a decline of 15 percent from 1999/2000. Some analysts expect production to remain flat. Both positions have merit. On the one hand, few farmers could have anticipated the extreme price drops that took place this year. As recently as last spring, many sources were convinced that the Chinese government would not allow a reduction of more than 10 percent. However, prices actually fell as much as 40 percent in 1999 and many farmers may reassess their planting decisions for 2000. Yields are also likely to remain low as farmers commit less time and capital to a crop with declining returns.
On the other hand, cotton prices have improved in recent months as low prices have triggered increased consumption. Industry reports show that the trend toward increased use of synthetic fibers has reversed itself, at least in the short term, since cotton has become much more competitive. In addition, MOA sources and anecdotal evidence suggest that many farmers have few or no alternatives to cotton as a cash crop, since much of the land currently planted to cotton is unsuited to other cash crops such as fruits and vegetables. Under these conditions, a forecast area at 3.6 million hectares, down 4 percent from 1999 seems reasonable. With yields at or slightly below 1999, production should stand roughly at 16.0 - 17.0 million bales.
Former Soviet Union (FSU): Cotton area for 2000/01 is forecast to remain near this year's 2.5 million hectares. As in the past, two opposing forces continue to influence the size of the cotton area. The Republics need both hard currency from the sale of cotton and area for increased food production to feed their growing populations.
The Government of Uzbekistans long-term cotton production policy is to stabilize cotton area at 1.5 million hectares and production at 4.0 million tons of seed cotton. Although this is expected to again be a policy objective in 2000/01, most observers agree that it is becoming more difficult for the government to meet this target due to increasing problems with basic production operations and inputs, including irrigation, weed and insect control, inadequate machinery, poor crop rotation practices, and perhaps most important, the continued widespread usage of low-quality seeds. Given the slow pace of reform and assuming a return to more normal weather, lint production for the outyear is forecast at 5.0 - 5.2 million bales, just below the 1999/2000 level.
Turkmenistan, the second largest producer in the FSU, has had difficulties in maintaining production in recent years. However, the government has announced that it will continue the initiatives for 2000/01 that they started last year. The government will pay half the costs for planting seed, chemical, fertilizer, and technical support services. Last year, the government purchased nearly US$20 million worth of small tractors for use throughout the country. Cotton varieties will continue to be replaced with new ones that are more resilient to disease and pests. The government recently declared that farms will be limited to a three-hectare plot, to facilitate better crop management. Given the return of normal weather, lint production is forecast around 1.0 million bales for 2000/01, slightly below this years excellent crop of 1.2 million bales with area equaling that of last years 0.5 million hectares.
Mexico: Depressed world prices appear to be the major factor creating the pessimistic scenario for Mexicos cotton production for 2000/01. Preliminary industry estimates indicate that the area planted to cotton could decrease approximately 40 percent from 1999/2000, dropping to only 100,000 hectares. As a result, cotton production is estimated at approximately 400,000 bales. In support of this, industry analysts report a significant shift from cotton to wheat production in several states where cotton is traditionally the crop of choice. The shift has been particularly apparent in Sonora, Sinaloa and Mexicali areas.
Farm sources suggest that the insufficient governmental support, tight credit, and the high cost of financing are also combining to make cotton less attractive. In the Mexicali area, cotton growers have complained that the governmental support is insufficient to compensate for the current depressed prices. As a result, they are predicting that the planted area could fall from 40,000 hectares in 1999 to just 20,000 hectares in 2000. Reportedly, growers are requesting that the Government increase cotton supports from 1,300 pesos per hectare assigned in the 1999 crop to approximately 4,000 pesos in 2000 (U.S.$1= 9.50 pesos).
Farm groups have indicated that competition from lower priced U.S. cotton exacerbates the problem which has put pressure on domestic prices. Official sources stated that the availability of economical U.S. cotton with the re-authorization of the Step 2 payments could be an insurmountable obstacle for domestic producers. Reportedly, the domestic textile industry expects to continue purchasing most of the cotton it needs from the United States. Note: The Step 2 program provides payments to both traders and mills when U.S. prices diverge from world prices according to a set formula. In October 1999, the U.S. President signed legislation re-authorizing this program.
Brazil: Brazilian cotton area for 2000/01 production is forecast at about 750,000 hectares, an 8 percent increase compared to the 1999/2000 level of 695,000. Factors influencing the forecast will include relative commodity prices vis-a-vis competing crops, especially soybeans and corn. Cotton area expansion is likely to continue to occur in the Center-west states, mainly Mato Grosso, and also in the states of Goias and Bahia. Brazilian 2000/01 cotton production may rise slightly from this years estimated crop of 2.2 million bales, assuming favorable weather conditions during this seasons crop development and harvest. Other factors increasing expectations for higher production include the use of higher producing varieties and increased technology applied to the crop, such as no-till practices and integrated management for disease and pest control.
Argentina: Argentine cotton area for 2000/01 is projected at 500,000 hectares with lint output of up to 1.0 million bales. However, factors in the current year will influence final area for the outyear crop: The weather during the balance of the 1999/2000 crop season which will determine farmers returns. The level of international prices this season and finally the level of assistance provided by provincial and federal governments. Sources within the local cotton industry expect that the government will provide assistance to alleviate the current difficult economic situation of the cotton farmer. The local cotton industry is requesting higher export rebates from the current 3.2 percent to 10 percent, including financial support for the1999/2000 crop and credits for sowing the 2000/01 crop.
If the weather through harvest (May-June 2000) is normal and farmers obtain average yields, cotton world prices recover, and some federal support is provided for the future crop, total acreage could be as high as 600,000 hectares. This level of area is well above the current seasons drought-reduced plantings, but is still below that of the preceding two years. On the other hand, if the current situation worsens, as result of a poor crop for this year, continued depressed international prices and the lack of official assistance, the total cotton area for 2000/01 could drop to 400,000 hectares.
Paraguay: Production for 2000/01 is forecast at 350,000 bales of lint from 200,000 hectares. This reflects the official position of the Paraguayan cotton industry and government. However, these same officials caution that area may fall below this level due to the unexpected limitations on the availability of government production credit. Cotton is a crop grown primarily by the small farmer with only a few hectares of land and limited financial resources. Farmers rely to some extent on official credits for assistance. If credit availability tightens, they will reduce the farmers ability to purchase productive inputs such as fertilizer, negatively impacting yield.
Adding to the problem is the low level of cotton production this year, due in part to dry weather and some late planting. This situation will reduce net income for the cotton sector, thus negatively effecting financial resources and the farmers availability to plant the 2000/01 crop.
Pakistan: Area for 2000/01 is forecasts to decline about 7 percent from this years to around 2.8 million hectares as farmers shift out of cotton due high input costs and decreasing returns due to low local prices because of this years large harvest. Current 1999/2000 farm gate seed cotton prices are about 40 percent or 10 cents per pound lower than the average 1998/99 price, despite the government efforts to support prices. Alternative crops to cotton are expected to be corn, sunflower, sugarcane, and other minor crops. The 1999/2000 average yield of 595 kilograms per hectare is 26 percent above the weather and insect reduced yield of 1998/99. Marketing year 1999/2000 yields improved due to: (a) increased planting of disease and insect tolerant varieties, (b) adequate fertilizer application, and (c) adequate availability of better quality pesticides. Yields have also improved due to favorable weather and the absence of significant pest infestation. The trend to increased use of tolerant varieties and better availability of inputs is expected to continue for 2000/01. As a result, assuming a 7 percent decline in area and yields closer to average, the 2000/01 output is expected to be down about 1.0 million bales from this years crop--currently estimated at 8.4 million bales.
India: Cotton prices have declined for the second year in a row due to excess supplies and low international prices. Record carryover stocks and higher production during the current marketing year have further weakened domestic prices which are currently running 6 to 25 percent lower than last seasons prices. At some buying centers the market prices have declined to the minimum support price (MSP) level fixed by the government and some farmers have resorted to picketing the Cotton Corporation of India (government parastatal entrusted with the price intervention responsibility when prices decline below MSP) demanding that purchase offices intervene in the market. Despite lower prices, cotton off-take by textile mills has been slow due to the poor financial condition of many mills and tight credit supplies. Although the government has announced a 1999/2000 export quota of 500,000 bales, the cotton export outlook remains very bleak due to current low international prices.
These low cotton prices are expected to have an adverse impact on the next years planting. As area planted to cotton in northern states has already declined over the past few years (from 2.07 million hectares in 1996/97 to 1.47 million hectares in 1999/2000), any further area decline in the region would be marginal due to the limited scope of an additional shift in cotton area to competing crops (paddy/sugarcane). Due to higher procurement prices offered under the Maharashtra state monopoly procurement scheme (15-20 percent higher than market prices), cotton area is expected to expand marginally in Maharashtra. However, cotton area in the other states is expected to shift to competing crops (coarse cereals in Gujarat/ Madhya Pradesh and tobacco/chillies in southern states). The net impact will likely result in a decline in 2000/01 planting to 8.4 million hectares compared to 1999/2000 estimated planted area of 8.7 million hectares and a record 1998/99 area of 9.3 million hectares. Assuming a timely onset of the 2000 monsoon and normal weather during the crop season, 2000/01 cotton production is forecast at 12.1 million bales, about 7 percent below the 1999/2000 production estimate at 13.0 million bales.
Australia: The area sown to irrigated cotton in 1999/2000 was largely unchanged from the previous year, however poor prices and soil moisture at time of sowing reduced dryland area by more than 70 percent. As a result, overall total cotton area fell by 21 percent to 450,000 hectares.
The outlook for cotton production in Australia for the 2000/01 season is closely linked to prices and water availability. Local cotton officials suggest that the low prices received by Australian cotton producers over the past year will persist into the new year. However, water availability should not pose a major constraint to irrigation. While the New South Wales government is reviewing options to limit irrigation in an effort to improve environmental health, major new restrictions are unlikely. An increase in dryland cotton area is expected if soil moisture levels at planting are improved which would result in some land reverting to cotton.
With sufficient water, irrigated area is expected to be largely unchanged as returns from irrigated cotton relative to other crops are likely to remain attractive. With a larger dryland area and an unchanged irrigation area the 2000/01 crop area is estimated at 460,000 hectares with production of about 3.0 million bales with average yields.
Turkey: Cotton area and production for 2000/01 are projected at 730,000 hectares and 3.9 million bales, essentially unchanged from the current marketing year. Producers were unhappy with the prices they have received for this years seed cotton. Even with the 12 cents per kilogram bonus for seed cotton and a recent 16 percent jump in domestic cotton prices, farmers are not optimistic about receiving significantly higher returns for cotton during the next crop year. Because of this situation, area decreases are expected to continue in the Cukurova and Aegean regions, where land can be shifted to crops like fruits and vegetables for consumption by the local people and tourist. These decreases are expected to be offset by increased production in the Southeast Anatolia region, where an additional 20,000 hectares will be irrigated under the GAP project, and where there are few commercially viable alternatives to cotton which traditionally go to the export markets of Russia and other European countries.
Ronald R. Roberson, Cotton
Phone: (202) 720-0879
Corn Outlook: Key Countries With Crops Still in the Field
World corn production for 1999/2000 is estimated at 599.9 million tons, down 5.3 million or 1 percent from last years record crop. An increase of total foreign production to a record level was not enough to offset the decline in the worlds largest corn producer-- the United States. China, the worlds second largest producer, also is estimated to have harvested less corn this season, while the European Union and Eastern Europe produced more than 1998/99. This article will discuss the 1999/2000 corn production prospects in the major corn producing countries that currently have crops growing: Mexico, Brazil, Argentina, South Africa, Zimbabwe, Thailand, and Philippines. Corn output is estimated higher than last season in Argentina, South Africa, Zimbabwe, and Philippines, nearly unchanged in Brazil, and lower for Thailand. (See attached charts.)
Corn production in Argentina for 1999/2000 is estimated at 15.5 million tons, up 2.0 million or 15 percent from last season. Harvested area is estimated at 3.1 million hectares, up 22 percent from last season. The Argentine government estimates planted area at 3.6 million hectares. As of February 4, the ministry of agriculture reported 97 percent of the area had been planted to corn compared to 100 percent in the previous 2 years. The remainder of the areas to be planted are in the dry northernmost provinces. Yield is estimated at 5.00 tons per hectare, down 6 percent from last year.
Seasonal rainfall has been below normal in the northern and eastern portions of the countrys growing region. However, rainfall in mid- to late January improved moisture conditions. January rainfall was adequate in roughly 90 percent of the nations corn region, with 5 percent of the crop has receiving less than 50 percent normal rainfall. In most of the key corn-producing provinces: Buenos Aires (45 percent of total production), Cordoba (22 percent) and parts of Santa Fe (18 percent), soil moisture has been adequate to plentiful. Generally, crop condition and yield prospects are good in these areas. In Northern Santa Fe, corn planting was delayed due to dryness, but January rainfall was beneficial for crop development. However, southeastern Santa Fe, where nearly 25 percent of Santa Fes corn area is grown, long term dryness has stressed the crop. Also, dry conditions exist for corn in Entre Rios (5 percent of total production) and parts of northeastern Buenos Aires, where 8 percent of the corn area is located. Due to the large planting window (September to January), crop development varies but most of the corn is silking to grain-filling. Drying of early-planted crop has also begun. The harvest typically begins in March and continues through July.
Brazil is forecast to produce 32.0 million tons of corn for 1999/2000, down slightly from last year. Two corn crops are cultivated: the first-crop is planted from October to December and harvested from February to June, while the second crop, Safrinha, is planted from January to early March and harvested from June to September. The first-crop accounts for about 85 percent of total corn production and the Safrinha accounts for the remaining production. The key first-crop producing states include: Parana (22 percent of the total), Rio Grande do Sul (14 percent), Minas Gerais (14 percent), Santa Catarina (11 percent), Sao Paulo (percent), Goias (10 percent), Mato Grosso do Sul (3 percent), and Mato Grosso (3 percent). In addition, about10 percent of the first corn crop is planted in the North and Northeast during February, but is highly rain-dependent and lower yielding. Important Safrinha producing states include: Parana (37 percent of the total), Sao Paulo (20 percent), Mato Grosso (15 percent), Mato Grosso do Sul (13 percent), and Goias (12 percent).
Harvested area is estimated at 12.4 million hectares, up slightly from last season as corn prices remained strong at planting. While the price of inputs, primarily fertilizers, herbicides, and pesticides has increased roughly 25-35 percent due to the January 1999 devaluation of the Brazilian currency, imports of these inputs are down about five percent (typically about 50 percent of these inputs are imported). This suggests that decreases in yields may not be as low as feared in the initial months following the devaluation. Similarly, larger producers who tend to use higher levels of technology and account for a greater proportion of production may continue to use the same amounts of inputs, but smaller producers may be more likely to reduce input purchases in an effort to minimize production cost outlays and contain input cost increases at the beginning of the season.
The first corn crop is adversely impacted by the La Niņa related dryness in the south. According to a field report by the U.S. agricultural counselors office in Brasilia, the impact of the dryness from October through December was most severe in southern Mato Grosso do Sul, western Parana, Santa Catarina, and Rio Grande do Sul. The dryness reduced yield potential during the early stages of crop development. However, the affect of the dryness on corn production in the state of Parana is likely to be minimal since most of the corn is grown primarily in the southern and southeastern parts of the state where rainfall has been adequate. In early January, about one third of the first crop was vegetative, one third tasseling, and one third in the grain fill stage. During mid January into early February, scattered rainfall improved soil moisture and crop conditions. The second crop plantings will most likely increase as producers that were unable to plant their first crop may decide to sow additional area into corn as long as prices remain attractive and rainfall is adequate. On February 10, the Brazilian agricultural ministry announced that it would spend 726 million real (US$410 million) during this years harvest to support domestic prices by buying about 12 million tons of grain off the market.
South Africas 1999/2000 corn production is estimated at 9.0 million tons, up 27 percent from a year ago due to higher area and yield. Area is estimated at 3.2 million hectares, 10 percent above last year. The increase in corn area is due mainly to decreased sunflower plantings in response to last seasons overproduction and low prices. Planting was delayed 2 to 4 weeks this season due to dryness in October and November, but widespread rainfall in December encouraged farmers to change their planting intentions and expand corn area, especially in the west where planting can occur through mid-January. Widespread rainfall and moderate temperatures since the second week of December favored corn emergence and development. Some sections of Free State have been drier than normal and would benefit from additional rainfall as the crop begins pollination. Rainfall has been abundant in the north and east, where the crop is reportedly in excellent shape. Western areas have been unusually wet since mid-January, although no flooding or serious waterlogging has been reported. Overall, the corn crop is in good condition, and as the crops pass through pollination and grain fill in February and early-March, continued favorable weather will be critical in determining the final yield prospects. The first official production estimate by South Africas National Crop Estimates Committee will be released on February 20.
Zimbabwes corn production for 1999/2000 is forecast at 1.7 million tons, up 0.2 million from last year. Area is estimated at 1.4 million hectares, down 50,000 hectares or 3 percent from a year ago, as farmers responded to higher input costs and low prices by reducing area. Rainfall during the growing season has been above-normal in southern and central parts of the country, providing abundant moisture for non-irrigated crops. The prime corn areas of northern Zimbabwe experienced episodes of dryness from November through mid-January which hindered planting and caused some crop stress, but irrigation should reduce the impact on yields. About 30 to 40 percent of Zimbabwes corn crop is produced on large-scale commercial farms, although they account for less than 10 percent of total area. According to farm industry officials, the commercial crop forecast has declined from pre-season estimates due to lower area, dryness at planting, and the effect of high input costs and fuel shortages.
Mexicos corn production for 1999/2000 is estimated at near record 19.0 million tons, up 1.4 million tons or 8 percent from last year. Harvested area is estimated at 8.4 million hectares, up 0.5 million hectares or 6 percent from 1998/99 due to favorable weather and higher reservoir levels. In a normal year, the summer corn crop generates at least 85 percent of the annual total, mostly from the fields across the central plateau region of south Mexico known as the Bajio (including states Jalisco, Guanajuato, Michoacan, and others to the east). The summer crop (mostly non-irrigated) is planted from April until August and harvested from October to February. A 1999 summer featuring very favorable growing conditions across the Bajio deteriorated into an overabundance of precipitation in late September and early October, but little harm was done in most states and a bumper main season crop is projected to be harvested. After October, rainfall as a rule is sparse north of the Bajio and west of the coastal Gulf of Mexico states, and the current crop season is no exception. The winter crop is mostly irrigated and is planted from November to February and harvested from March to July. The main winter crop producing States are Sinaloa and Sonora in the coastal northwest, Tamaulipas along the east coast, Chiapas and Oaxaca in the south. The predominant contribution comes from Sinaloa, which typically provides over 50 percent of the seasons production; however, the Sinaloa crop can vary by the amount of water available in the reservoirs. Mexicos National Water Commission placed the northwest regions reservoir level at an overall 32 percent of normal at the end of December 1999, nearly double the regional status a year ago, and about the same as 1997. Due to the increased reservoir levels, winter corn output is projected to be larger than 1998/99.
Corn production in Thailand for 1999/2000 is estimated at 4.1 million tons, down 0.2 million or 5 percent from 1998/99. Corn is Thailands primary feed ingredient: utilized mainly in preparation of broiler and swine feeds. Thailands broiler and hog industries continue to recover following the Asian economic crisis, creating demand for corn. However, harvested area for 1999/2000 is estimated at only 1.2 million hectares, down 8 percent from last season.
The main crop (representing about 80 percent of the total) is planted in April and harvested in August, while the second crop is planted in September and harvested in February. Harvested area is down for the main crop due to weaker corn prices that led producers to plant more cassava. Area declined further during the second season due to floods from excessive rainfall. Overall yield is estimated at 3.42 tons per hectare, up 3 percent from last season, just short of the 1997/98 record of 3.43 tons. Average national yield is trending upward because of increased use of high yielding varieties and greater use of inputs.
Earlier in the season, the forecast production for 1999/2000 was expected to remain unchanged from 1998/99 at 4.3 million tons, as the reduced area was expected to be offset by improved yield. Monsoon rains came early and were favorable from April through September. There was a two to three week dry period in June, but it was not expected to cause a serious problem as most producers planted drought resistant corn. The early monsoon allowed main season corn to be marketed in July, a month earlier than normal. The projected overall production for 1999/2000 dropped from the earlier estimate as the second crop was negatively affected by heavy rains in September through November causing flooding in the hardest hit areas, stunting the vegetative and productive growth of the corn, and rotting fully-grown corn cobs.
Corn production in the Philippines for 1999/2000 is estimated at 4.5 million tons, down 0.4 million or 8 percent from 1998/99. Harvested area is estimated at 2.7 million hectares, down 2 percent from last season. The main season crop is harvested between September and December, the second season crop is harvested between February and April. Less area was planted to corn this season following heavy La Niņa rains throughout the corn producing region of the country. Producers chose to plant rice instead of corn given the excessive moisture. Continuous and excessive rain lowered yields to an estimated 1.67 tons per hectare, down 6 percent from 1998/99's record yield of 1.77 tons, but it is still above the 5-year average. Despite the decrease this season, yield is trending upward owing to higher-yielding varieties and increased inputs. In addition, drying and storage problems affected the quality of harvested corn. Because of this, despite adequate supplies, local users are opting for better quality imported feed grains including corn substitutes such as sorghum and feed wheat.
Timothy Rocke, Grains Chairman
Telephone: (202) 720-1572
Rao Achutuni, Brazil Analyst
Telephone: (202) 690-0140
Maria Anulacion, Argentina
Telephone: (202) 690-0139
Suzanne Miller, Southeast Asia
Telephone: (202) 720-0882
Paulette Sandene, Southern Africa
Telephone: (202) 720-0133
Ron White, Mexico Analyst
Telephone: (202) 690-0137
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