DECEMBER 13, 1996
COTTON1.AGR COTTON: WORLD MARKETS AND TRADE December 1996 This report provides the text and analysis from the current COTTON: WORLD MARKETS AND TRADE publication. This report draws on information from USDA's global network of agricultural attaches and counselors, official statistics of foreign governments, other foreign source materials, and results of office analysis. Estimates of U.S. acreage, yield and production are from the USDA Agricultural Statistics Board, except where noted. This report is based on unrounded data; numbers may not add to totals because of rounding. The report reflects official USDA estimates released in the World Agricultural Supply Estimates (WASDE number 321, December 12, 1996.) The report was prepared by the Tobacco, Cotton and Seeds Division, FAS, AGBOX 1051, 14th and Independence Ave., Washington, DC 20250-1000. Further information may be obtained by writing to the division, or by calling (202) 720-9516, or by FAX (202) 690-1171. The next issue of the Cotton circular will be available electronically after 3:30 pm local time on January 13, 1996.
Further Information Contact: U.S. Department of Agriculture Foreign Agricultural Service Tobacco, Cotton, and Seeds Division Stop 1051 1400 Independence Ave. SW Washington, D.C. 20250-1051 Telephone -- (202) 720-9516 Fax -- (202) 690-1171 Kenneth E. Howland, Director Lana Bennett, Deputy Director Abdullah Saleh, Group Leader, Cotton Analysis Principal Contributors Anita Regmi.....Cotton Analyst for Asia, Latin America, Africa &Oceania Rozlyn M. Sikora.....Cotton Analyst for FSU, Middle East & Europe Anita Middleton.....Electronic Word Processor Ron Roberson.....Chairperson for Foreign Area and Production, PECAD
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World cotton production for crop year 1996/97 is forecast at 85.9 million bales, down 1.1 million bales from last month's forecast. The U.S. cotton production forecast is 18.7 million bales, up 144,000 bales from last month's forecast.
World cotton production for crop year 1995/96 is estimated at 91.8 million bales, up 238,000 from last month's estimate. U.S. cotton production in 1995/96 totaled 17.9 million bales.
World cotton consumption for MY 1996/97 is forecast at 85.3 million bales, down 390,000 bales from last month's forecast. U.S. consumption is forecast at 11 million bales, unchanged from last month's forecast.
World cotton consumption for MY 1995/96 is estimated at 84.3 million bales, down 340,000 bales from last month's estimate. U.S. cotton consumption in 1995/96 totaled 10.6 million bales.
World cotton exports for MY 1996/97 are forecast at 26.3 million bales, basically unchanged from last month's forecast. U.S. exports are forecast at 6.2 million bales, up 400,000 bales from last month's forecast.
World cotton exports for MY 1995/96 are estimated at 27.2 million bales, down 255,000 bales from last month's estimate. U.S. exports in 1995/96 totaled 7.7 million bales.
World cotton ending stocks for MY 1996/97 are forecast at 37 million bales, up 71,000 bales from last month's forecast. U.S. ending stocks are forecast at 4.6 million bales, down 300,000 bales from last month's forecast.
World cotton ending stocks for MY 1995/96 are estimated at 36.2 million bales, up 539,000 bales from last month's estimate. U.S. ending stocks totaled 2.6 million bales.World Situation
World cotton production for 1996/97 is forecast at 85.9 million bales, down 1.1 million bales from last month's estimate. Major adjustments include the following:
World cotton production in 1995/96 is estimated at 91.8 million bales, up 238,000 from last month's estimate. The increase in the production estimate was attributed to an increase in India's production estimate.
World cotton consumption in 1996/97 is forecast at 85.3 million bales, down 390,000 bales from last month's forecast. The increase in the consumption forecast for Pakistan was more than offset by the decrease in the consumption forecast for China.
World cotton consumption in 1995/96 is estimated at 84.3 million bales, down 340,000 bales from last month's estimate. The reduced consumption estimate was attributed to decreases in the consumption estimates for China and Indonesia.
World cotton exports for MY 1996/97 are forecast at 26.3 million bales, basically unchanged from last month's forecast. Increases in the export forecasts for the United States, Syria, India, Zimbabwe, and the African Franc-Zone countries were offset by decreases in the export forecasts for Greece, Pakistan, Turkmenistan, and Uzbekistan.
World cotton exports for MY 1995/96 are estimated at 27.2 million bales, down 255,000 bales from last month's estimate. The reduced exports estimate was attributed mainly to decreases in the exports estimates for Pakistan and Syria.
World cotton ending stocks for MY 1996/97 are forecast at 37 million bales, up 71,000 bales from last month's forecast. Decreases in the ending stocks forecasts for the United States, Australia, Brazil, Greece, Pakistan, and Turkmenistan were offset by increases in the ending stocks forecasts for China, Egypt, and India.
World cotton ending stocks for MY 1995/96 are estimated at 36.2 million bales, up 539,000 bales from last month's estimate. The decrease in the ending stocks estimate for Brazil was offset by increases in the ending stocks estimates for China, India, Pakistan, and Syria.
The 1996/97 Cotlook A-Index averaged 75.94/lb. during November, up from October's average of 75.42 cents/lb. The A-Index which began the month at 75.4 cents/lb. ended November 29 at 78.55 cents/lb. The Central Asian quote was the lowest in the Index, averaging 71.35cents/lb. During November, the California/Arizona and Memphis Territory quotes were above the A-index by an average of 5.31 cents/lb. and 5.86 cents/lb., respectively. For the first time this season, a U.S. value has been included in the A-Index after the withdrawal of Mexican quotation due to the lack of uncommitted supply. Futures prices on the New York Cotton Exchange rose in November as producers were reluctant to sell at lower levels amid rising A-Index and reports of a smaller world crop. The December contract, which began the month at 72.47 cents/lb, declined for the first half of the month. However, during the second half of November, spurred by the inclusion of a U.S. value in the A-Index, futures prices started moving up and finally closed November 27 at 74.8 cents/lb.
The seasonally adjusted daily rate of U.S. cotton consumption in October amounted to 41,348 bales (480-lb), slightly above September's level of 41,316 bales. A total of 858,269 bales were consumed in October (4 weeks), compared with 1,055,923 bales during 5 weeks in September. The seasonally adjusted annualized consumption rate for the month of October was 10.79 million bales, close to September's 10.77 million bales. Domestic mill purchases continued at a moderate pace with light purchases for prompt and nearby deliveries. Consumer interest in cotton products continued steady. Demand for denims was strong, and casual apparel, fleece, and infant wear remained fair. Demand for housewares and sales yarn was steady, while gray cloth and specialty yarns and fabrics was lackluster.
Cotton stocks on hand in consuming establishments during October totaled 581,419 bales (480-lb), up from 551,981 bales in September. Stocks held in public storage and at compresses totaled 6.6 million bales, up from 2.1 million in September. Active spindles in place in October 1996 totaled 6.1 million, of which 2.6 million were dedicated to 100-percent cotton, compared with 6.8 million and 2.8 million during the same period in 1995. Cotton's share on the cotton spindle system was 78 percent.
U.S. cotton exports for September totaled 171,000 bales, down 33 percent from 257,000 bales in August, and 30 percent below September 1995 exports, according to the U.S. Bureau of the Census. The leading markets in September were China, Mexico, Canada, Japan, and Indonesia.
U.S. cotton imports for September outstripped exports for the month and totaled 194,000 bales, up 24 percent from 157,000 bales in August, according to the U.S. Bureau of the Census. The leading sources for cotton were Uzbekistan, Argentina, Mexico, and Australia.
The Government of Pakistan withdrew a 5-percent applied duty on cotton imports, and reduced to 5 percent the current regulatory duties of 15 and 10 percent on polyester and viscose fiber imports, respectively. The 10-percent regulatory duty on raw materials for manufacturing polyester also was withdrawn. In addition, the 4-percent withholding tax on raw cotton imports was reduced to 1 percent, and the 10-percent regulatory duty on various textile machinery was withdrawn. These changes in import regulations were made to stimulate Pakistan's declining textile industry. Since January 1995, Pakistan has allowed free cotton exports. With a 13-percent decline in domestic cotton production for MY 1996/97 and unrestricted exports, cotton prices in Pakistan have been higher than the world level. Rising costs for cotton and other inputs have resulted in several Pakistani textile mills being closed. The new regulation is expected to provide relief by allowing competitively priced imports into Pakistan.
Over the past several years, garment exports from the Philippines have been increasing. At the same time, the Philippines growing economy and population are significant factors contributing toward expanding domestic demand. Despite these increases, raw cotton imports have remained relatively stagnant over the last 3 years. In MY 1993/94, the Philippines imported a record 10-year high of 361,000 bales of cotton. Since then, cotton imports continued to remain below 300,000 bales. Although last year's high cotton prices prompted some shifting to synthetics, the Philippines growing cotton needs increasingly are being met by large imports of cotton yarn and fabric.
The primary reason for the substitution of cotton by yarns and fabrics is the high cost of local textile milling. Among Asian countries, electricity costs in the Philippines are second only to Japan. The rate structure in the Philippines is particularly onerous to millers because it subsidizes small residential users at the expense of large volume users like textile mills. In addition, labor rates, although still relatively inexpensive, are considerably above those of emerging new garment producers like China and Vietnam.
Another contributing factor to the switch to yarns and fabrics is the reduction in the tariff spread between yarns and fabrics, and raw cotton. Several years ago, yarns and fabrics were charged 20 to 30 percent tariffs and raw cotton 5 percent. Currently, tariffs on yarns and fabrics are generally 10 percent and 20 percent, respectively, while cotton has declined to 3 percent. Next year, the tariff on fabrics will drop to 10 percent. The reduction in the tariff spread will provide some incentive for mills to import more yarns and fabrics over raw cotton.
Although the United States accounts for half of the Philippines raw cotton import market, it plays a very small role in cotton yarn and fabric imports. A primarily low-end market, the Philippines yarn and fabric imports have predominantly been sourced from Asian countries, particularly China and Pakistan. However, as incomes continue to rise in the Philippines, consumers should become more interested in higher quality fabric. Besides meeting increasing domestic demand, many Philippine garment producers are beginning to focus on developing higher quality products for future export growth. The high end market may become the key to successfully exporting U.S. cotton yarns and fabrics to the Philippines in the future.
Syria: Syria's MY 1996/97 cotton crop is estimated to have registered a record high of 1.12 million bales. The record production increase, coupled with a cotton surplus from last year, have created a comfortable supply position, signaling a boost in Syrian cotton exports. Syria is forecast to increase exports over 40 percent from last year, to 850,000 bales. Most of this cotton will likely be exported to European mills as well as Russia, China, and Poland, thus competing with U.S. cotton exports to these markets on the basis of price. The Syrian cotton quote, averaging around 72.0/lb. through October and November, continues to be a part of the A-index and sells at around 4.5/lb. below U.S. Memphis cotton.
Syrian seed cotton procurement and ginning are monopolized by the government's Cotton Marketing Organization (CMO). The CMO deals with the local price structure and methods of supplying and warehousing seed cotton and paying its value to growers. This organization also distributes Syrian cotton to domestic and foreign markets. Marketing is undertaken by trade delegations sent at the beginning of the marketing season to Syria's traditional export markets. In addition, the CMO maintains agents in most of the cotton importing countries for cotton promotion purposes.
Syrian cotton consumption is also projected to increase with new spinning facilities coming on-line. Domestic mill use in MY 1996/97 is forecast to reach a record high of 350,000 bales in MY 1996/97. Recent reports indicate that the Syrian government and private sector are investing $1.27 billion in cotton spinning facilities to capture the value-added benefits of processing. The Textile Ministry claimed in one report that the difference in price between cotton and yarn could be as high as $7,000 per ton for some processed grades. Apparently, the Syrian government's goal for the textile industry within the next 3 years is to spin most of the country's cotton output internally. Syria's Textile Ministry claims that the government is in the process of investing $600 million to build four spinning mills and to expand existing ones. All four of the projects include joint-ventures with foreign investors from Spain, Germany, and China. If these projects come to fruition, Syrian raw cotton exports will decline substantially in the next 3 years unless production maintains the same growth witnessed this year. Declining exports from Syria could trigger increased interest in U.S. cotton in countries like Poland and Russia, whose textile industries are expected to recover in the next few years.
Special Article: India's Cotton Sector Continues to Expand
Due to a larger planted area and higher yields resulting from a favorable weather pattern, India's 1995/96 cotton crop reached an all-time high of 12.5 million bales. For the 1996/97 season, cotton area is estimated to be slightly lower, and production is forecast at 12.3 million bales, the second largest crop ever.
Cotton is grown throughout India, encompassing a wide range of agronomic and climatic regions. The main cotton growing areas are divided into three distinct regions: the northern zone encompassing parts of Punjab, Haryana, and Rajasthan; the central zone consisting of parts of Gujarat, Madhya Pradesh, and Maharastra; and the southern zone consisting of Andhra Pradesh, Karnataka, and Tamil Nadu. In the northern zone, cotton is generally planted in May and is of medium and short staple (Bengal Deshi) lengths. Almost all of the area is irrigated. The central zone has the largest area under cotton, but as most of this is rainfed, cotton yields are low. In this region, cotton is generally planted in mid-June. The southern zone grows most of India's long and extra long staple cotton. Cotton is planted during August/September and harvested in February. However, in the state of Tamil Nadu, cotton may be grown year-round.
Cotton Growing Areas in India (in 1,000 hectares) Zones 1991/92 1992/93 1993/94 1994/95 1995/96* Northern 1624 1697 1646 1619 1645 Central 4481 4111 4259 4603 4759 Southern 1431 1691 1490 1596 1866 Others 65 43 45 43 49 Total 7601 7542 7440 7861 8319 * Estimate Source: The South India Cotton Association, September 1996.
Along with the expansion of cotton production, India has experienced significant increases in cotton consumption. During the past 5 years, mill use of cotton increased by 28 percent, reaching 11.4 million bales in 1995/96. Cotton consumption for the 1996/97 season is forecast at 11.8 million bales. The rapidly expanding textile industry is the largest industry in India. It accounts for 7 percent of GDP, 20 percent of the country's total industrial output and 38 percent of the country's total export earnings.
The Indian textile industry consists of three distinct sectors: the mill sector; the powerloom sector; and the handloom sector. Of the 1569 textile mills in the country, over 82 percent are exclusively spinning units, while the remaining are composite mills. The mill sector produces most of the yarn in India, but accounts for only about 8 percent of total fabric production. Powerlooms produce about 70 percent of India's total fabrics, while handlooms account for the remaining 22 percent. Powerlooms and handlooms purchase yarn from the spinning mills and converts it to cloth at a cost 20 percent lower than that of a large mill. Powerlooms are mainly concentrated in the states of Maharastra, Gujarat, and Tamil Nadu. The handloom sector, operated largely at the household level, provides employment to over 3 million weaver households and 12.9 million weavers.
Depending on the volume of domestic production, India has oscillated from exporting over a million bales in some years to being a net importer of cotton in others. India exported an estimated 620,000 bales of cotton during 1995/96, and is forecast to export 1,000,000 this marketing year. The main markets for Indian cotton are Japan, Western Europe, and Bangladesh. This year, India is expected to ship a significant amount of cotton to Pakistan which has experienced a severe crop failure due to pests and disease.
In addition to raw cotton exports, cotton yarn is one of India's major textile sector exports. Recently, fabric and apparel are increasingly being exported from the newer composite mills. The major markets for cotton yarn are Bangladesh, Hong Kong, Korea, Italy, Mauritius, Japan, and Israel; while fabric and apparel are mainly exported to the United States, European Union, and other countries.
The Indian textile industry is regulated to promote domestic production of value-added products. Mills designated as Export Oriented Units (EOU) are allowed to import machinery and raw materials duty free as long as 75 percent of their production is exported. In addition, the Export Promotion Capital Good Scheme (EPCG) allows other mills reduced duty on imports of machinery against export obligations. Since 1994, raw cotton can be freely imported but value-added cotton imports are restricted. There is a 50-percent duty and a 2-percent surcharge on yarn imports. Cotton fabric and apparel are classified as consumer goods and their import requires special import licenses. The EOUs and firms importing against export obligations get duty discounts on yarn and fabric imports.
To ensure adequate supplies of raw material at a reasonable price for the domestic textile industry, exports of raw cotton and cotton yarn are restricted. Based on domestic supplies, export quotas are announced each year and may be revised several times during the year. India's total raw cotton export quota for the 1996/97 crop season is currently set at 500,000 170-kg bales (390,000 480-lb bales). Traders are hopeful that this quota level will be increased significantly after an official assessment of the supply and demand situation later this month. The yarn export quota is distributed among exporters with 80 percent of the quota based on the past performance of the exporter and 20 percent allotted on a first come first served basis. However, yarn exports by EOUs, EPCG mills and exports against cotton imports under export obligations, or exports of yarn exceeding 40 counts to non-quota countries may be effected over and above Indian quota limits.
The long-term outlook indicates that India's cotton based textile sector will continue to expand. With the removal of textile quotas by the year 2005, India is expected to increase its production of apparel and other "finished" products. Growth in cotton production is expected mainly through increases in yield. As most cotton area in India is rainfed, Indian cotton yields are currently among the lowest in the world. With the expansion of large scale irrigation systems in Central and South India, adoption of better seed varieties, and better management practices, cotton yields are expected to increase. Although the Indian textile sector is expected to continue its rapid expansion, the growth in mill use of cotton is expected to be relatively slower. The government of India is promoting increased use of manmade fiber to achieve its goal of raising manmade fiber share of use from the current 30 percent to 50 percent. Accordingly, the import duty for polyester fiber was lowered in July 1996 from 45 to 30 percent. Despite the large supply of domestically produced cotton, given its rapidly expanding textile sector, India will continue to be an erratic exporter and from time to time an importer of cotton. Last modified: Wednesday, June 11, 1997