COTTON: WORLD MARKETS AND TRADE June 1997 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 327, June 12, 1997.) The report was prepared by the Cotton, Oilseeds, Tobacco and Seeds Division, FAS, Stop 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 July 14, 1997. Further Information Contact: U.S. Department of Agriculture Foreign Agricultural Service Cotton, Oilseeds, Tobacco, and Seeds Division Stop 1051 1400 Independence Ave. SW Washington, D.C. 20250-1051 Telephone -- (202) 720-9516 Fax -- (202) 690-1171 Larry Blum, Director Lana Bennett, Deputy Director, Analysis Abdullah A. Saleh, Group Leader, Cotton, Tobacco, and Seeds Analysis Principal Contributors Anita Regmi Cotton Analyst for Asia & Oceania Ann Murphy Cotton Analyst for the Americas Jon Ann Flemings Cotton Analyst for FSU & Europe Andrew Levin Cotton Analyst for Africa & the Middle East Ada Arrington Electronic Word Processor Ron Roberson Chairperson for Foreign Area and Production, PECAD The United States Department of Agriculture (USDA) prohibits discrimination in its programs on the basis of race, color, national origin, sex, religion, age, disability, political beliefs and marital or familial status. (Not all prohibited bases apply to all programs). Persons with disabilities who require alternative means for communication of program information (braille, large print, audiotape, etc.) should contact the USDA's TARGET Center at (202) 720-2600 (voice and TDD). To file a complaint, write the Secretary of Agriculture, U.S. Department of Agriculture, Washington, D.C., 20250, or call
(1-800) 245-6340 (voice) or (202) 720-1127 (TDD). USDA is an equal employment opportunity employer. Summary World cotton production for MY 1997/98 is forecast at 87.5 million bales. The U.S. cotton production forecast is 18.5 million bales. World cotton production for MY 1996/97 is estimated at 88.3 million bales, up 320,000 bales from last month's forecast. U.S. cotton production is estimated at 18.9 million bales, unchanged from last month's forecast. World cotton consumption for MY 1997/98 is forecast at 88.5 million bales. The U.S. cotton consumption forecast is 11.0 million bales. World cotton consumption for MY 1996/97 is estimated at 86.7 million bales, up 237,000 bales from last month's forecast. U.S. consumption is estimated at 10.9 million bales, unchanged from last month's forecast. World cotton exports for MY 1997/98 are forecast at 27.2 million bales. The U.S. cotton exports forecast is 7.3 million bales. World cotton exports for MY 1996/97 are estimated at 26.7 million bales, down 70,000 bales from last month's forecast. U.S. exports are forecast at 7.1 million bales, up 100,000 bales from last month's forecast. World cotton ending stocks for MY 1997/98 are forecast at 35.3 million bales. U.S. cotton ending stocks are forecast at 4.2 million bales. World cotton ending stocks for MY 1996/97 are forecast at 36.3 million bales, down 1.2 million bales from last month's forecast. U.S. cotton ending stocks are forecast at 4.0 million bales, down 100,000 from last month's forecast. World Situation World cotton production for MY 1996/97 is estimated at 88.3 million bales, up 320,000 bales from last month's estimate. Major adjustments include the following: Argentina's production was decreased by 200,000 bales due to lower yields resulting from dry spells in January and March. Australia's production was increased by 200,000 bales as excellent pre-harvest and harvest weather has increased yield prospects. India's production was increased by 300,000 bales to a record 12.8 million bales due to favorable weather and timely rains in central and southern India. Turkey's production was decreased by 205,000 bales due to heavy rains during harvest that reduced the yield and quality of cotton. Pakistan's production was increased by 200,000 bales based on official data from the Ministry of Agriculture. World cotton consumption for MY 1996/97 is estimated at 86.7 million bales, up 237,000 bales from last month's estimate. Decreases in the consumption estimates for Egypt and other countries were more than offset by the 500,000 bale increase in the consumption estimate for China. World cotton exports for MY 1996/97 are estimated at 26.7 million bales, down 70,000 bales from last month's estimate. The increases in the export estimates for Australia and the United States were more than offset by the decreases in the export estimates for India, Argentina, Turkey and other exporting countries. World cotton ending stocks for MY 1996/97 are estimated at 36.3 million bales, down 1.2 million bales from last month's estimate. The decreases in the ending stocks estimates for China, Argentina, Turkey and the United States more than offset increases in the ending stocks estimates for India and Egypt. Cotton Prices The 1996/97 Cotlook A-Index averaged 79.28/lb. during May, up from April's average of 78.92/lb. The A-Index which began the month at 78.85/lb. ended May 29 at 80.15/lb. The Central Asian quote was the lowest in the Index, averaging 77.50/lb. During May, the California/Arizona and Memphis Territory quotes were above the A-index by an average of 2.65/lb. and 1.31/lb., respectively. July 97 futures prices on the New York Cotton Exchange trended upward in May. The July contract which began the month at 72.31/lb. declined initially. However, May 12 USDA supply and demand report and a smaller production estimate for Argentina initiated futures price increases which reached a high of 73.56 on May 29. U.S. Highlights The seasonally adjusted daily rate of U.S. cotton consumption in April amounted to 42,148 bales (480-lb), above March's level of 40,681 bales. A total of 861,698 bales were consumed during four weeks in April, compared with 1,047,000 bales in March (5 weeks). The seasonally adjusted annualized consumption rate for the month of April was 11 million bales, up from March's 10.6 million bales. Domestic mill buying, active early in the month, slowed down during the second half of April. Purchases were light for prompt and nearby shipments. A large volume of cotton was purchased for fourth quarter 1997 through third quarter 1998 delivery. Consumer demand for textile goods continued strong. Sales of denim materials, housewares, casual apparel, and sales yarn were good. Sales of gray cloth and industrial goods though slow was steady. Demand for infant wear was fair, while demand for fleece products was lackluster. Cotton stocks on hand in consuming establishments during April totaled 692,904 bales (480-lb), down from 694,975 bales in March. Stocks held in public storage and at compresses totaled 6.2 million bales, down from 7.6 million in March. Active spindles in place in April 1997 totaled 5.7 million, of which 2.5 million were dedicated to 100-percent cotton, compared with 6.4 million and 2.6 million, respectively, during the same period in 1996. Cotton's share on the cotton spindle system was 77 percent. U.S. cotton exports for March totaled 848,000 bales, 16 percent above the 728,000 bales in February, and 9 percent below March 1996 exports, according to the U.S. Bureau of the Census. The leading markets in March were China, Mexico, Indonesia, Japan, Korea, Taiwan, Brazil and Hong Kong. U.S. cotton imports for March totaled 2,000 bales compared with 15,000 bales in March 1996, according to the U.S. Bureau of the Census. Uzbekistan and Tajikistan were the main sources for imports in March. International Highlights Bangladesh The European Union recently implemented a policy that Bangladeshi GSP(Generalized System of Preferences) textile exports to Europe be made from yarn made in Bangladesh. Bangladesh's largest garment export market is Europe with the value of knit exports totaling about $500 million annually. The European Union noted that much of the yarn used in Bangladesh's past exports was made in India. Based on Indian export figures, India exported about $155 million worth of yarn and sewing thread to Bangladesh in 1996. To avoid importing textiles made from Indian yarn at the zero GSP duty rate, the European Union started the new policy which applies 12.5 percent duty on imports containing yarn from countries other than Bangladesh. Despite a drop in overall garment exports since January 1997, the new GSP policy has increased the demand for domestically spun yarn and is viewed favorably by Bangladeshi mills. The mills, however, acknowledge the stiff competition posed by imports of cheaper Indian yarn. Indian spinning mills have access to inexpensive domestically produced cotton. Yarn imports into Bangladesh are levied a 7.5 percent import duty and an excise tax of 15 percent. However, these are waived when yarn is imported for use in the manufacture of textiles for export. On June 15, the European Union Council will consider proposals to modify the GSP system for Bangladesh. Unlike the Government of Bangladesh, which reportedly supports a system that permits the use of Indian or other imported yarn under GSP exports to the European Union, the Bangladesh Textile Mills association favors the continuation of the current policy. China Consumption Estimates Revised This month USDA revised its estimates of China's cotton consumption in 1994/95, 1995/96, and 1996/97 to reflect the recently revised official Chinese data. The foundation of USDA's estimates for China's cotton consumption is the yarn production data from China's State Statistical Bureau (SSB). The SSB publishes estimates of monthly Chinese yarn production during the course of the year, and later publishes updated annual totals for January-December. The difference between SSB's most recent annual figure for 1995 and the sum of its original monthly estimates is unusually large, 434,000 tons or 9 percent of the monthly total. This is by far the largest such difference since USDA began accumulating this data in 1982. The average revisions of the preceding 10 years were 2 percent, with all the revisions positive and ranging from 1 to 5 percent. One possible reason for the increase to 9 percent is the growing role in China's textile industry of
township-village enterprises and joint-ventures between state-owned mills and foreign partners. The SSB probably gets data from state-owned mills more quickly than from others, and its initial total yarn estimates would in that case rely on some assumptions about production by joint-venture mills and township-village enterprises. Spinning mills are not the only consumers of cotton in China, and cotton is not the only fiber used for yarn production in China. USDA's estimates of China's cotton consumption also incorporate assumptions about cotton's non-mill use and about cotton's share of fiber use by spinning mills. This month's revisions in China's cotton consumption also include some minor revisions for these variables, but are largely derived from changes in the yarn production data. (Contributed by Steve MacDonald, ERS/USDA, (202) 219-1179) Cote d'Ivoire The Government of Cote d'Ivoire (GOCI) announced an increase in the producer price of seed cotton for the 1997/98 marketing year. The price of first grade cotton was increased from 180 to 200 CFA F/kg (an increase of approximately 1 « cents per lb.). This price increase is one of a number of governmental actions expected to stimulate production, which is estimated to increase this year by 17% over 1995/96 levels. Cotton production in Cote d'Ivoire is expected to increase due to a switch by the cotton parastatal CIDT (la Comagnie Ivoirienne pour le Developpement des Textiles), to more profitable traditional varieties, and an expected increase in area due to higher prices offered to farmers. In addition, the GOCI allocated 2.9 billion francs for input subsidies in 1997/98 for chemical inputs for producers, and is continuing a program of free land clearing to interest youth in cotton production and to encourage mechanization. In addition, CIDT continues to subsidize cotton sales to local textile firms, which in turn depressed imports this year. During 1996/97, CIDT sold fiber to local firms at $0.59 per pound in 1996/97. These subsidies are expected to end in September 1997. Cote d'Ivoire is one of 10 Franc Zone countries, which as a group have the third largest cotton exports in the world, following the United States and Uzbekistan. Cote d'Ivoire ranks third among Franc Zone cotton exporters, with 1996/97 exports estimated at 440 million bales. The increase in cotton production in Cote d'Ivoire is important because it is indicative of the Franc Zone countries, which as a group export more than 90% of their production and have minimal imports. Like other Franc Zone producer/exporter countries, Cote d'Ivoire remains a significant competitor for the United States, particularly in the European cotton import market. Japanese Textile Sector in Decline For MY 1996/97, Japanese consumption of cotton is estimated at 1.3 million bales, 10 percent below the 1995/96 level. Faced with stiff competition from imports of Chinese textiles, cotton consumption in Japan has steadily declined. To remain viable the industry has undergone extensive restructuring whereby several mills were closed. Production capacity was drastically reduced within the past decade. While there were 140 spinning mills in 1986, currently only 66 are in operation. Similarly, the number of active spindles declined from 6.7 million in 1989 to only 3.3 million this year. Recognizing their comparative advantage in technology, Japanese spinners are trying to capture the market for special yarns such as fine count, complex fibers, double robing and micro fibers. Wrinkle- free textile products have also performed well and have become a regular textile item in the Japanese market. In the future, the consumption decline is expected to slow, as the industry is convinced that most of the needed restructuring and downsizing has been accomplished. Recently, the weak yen has also discouraged imports, and larger mills have been operating cost effectively at a higher capacity than in the past. Along with the cotton spinners, the Japanese synthetic fiber industry has been squeezed by inexpensive imported textiles from China. Although synthetic fiber production is declining, yarn consumption for 1996/97 at 2.2 million bale equivalent is estimated 10 percent higher than last year's level. With a current trend in the Japanese market towards a preference for natural fibers, the expansion of the synthetic fiber industry is expected to be limited. As a result of declining cotton consumption, Japan's cotton imports have decreased by about 50 percent during the past 6 years. For MY 1996/97, Japan's total cotton imports are estimated at 1,350,000 bales, 50 percent below the 1991/92 level and 10 percent below last year's level. Japan is a major market for U.S. cotton and U.S. exports to Japan account for about 12 percent of total U.S. cotton exports. Along with a decrease in total cotton imports, Japanese imports of U.S. cotton have also declined from over 2 million bales in MY 1991/92 to an estimated 800,000 bales for MY 1996/97. The U.S. market share, however, has remained relatively stable at about 60 percent of the total Japanese cotton import market during the past few years. Maintaining this market share may prove to be a challenge in the coming marketing year as a larger Australian crop harvested this spring vies for a greater share of Japan's market. Turkey Due to increased exports to the Former Soviet Union, the Turkish textile industry remains strong despite its exports to the European Union (EU) failing to reach expectations. As a result of the 1996 customs union, the EU abolished quotas in ten apparel and five textile categories. With increased market access, the Turkish textile and apparel industry predicted a 50 percent increase in exports to the EU. However, due to general recession and tight German monetary policies, Turkish exports to the EU have since decreased. Currently, the textile industry is the most important and dynamic sector in the Turkish economy. It accounts for 7 percent of Gross National Product, 28 percent of industrial employment and 38 percent of total exports. Total spinning capacity is estimated at about 1.4 million metric tons (MMT), of which about 1.1 MMT is for cotton. The Turkish textile industry remains strong and is attempting to increase its competitiveness by emphasizing efficiency and quality at all stages of production. To increase efficiency, the industry is modernizing and becoming increasingly vertically integrated. Presently, less than 20 percent of firms are involved in spinning operations and only 10 percent are involved in all aspects of production from yarn to finished clothing. These figures are expected to roughly double by the year 2000. Turkey's export oriented textile industry is the driving force behind the growing cotton imports. Despite a projected 25 percent increase in production between 1991/92 and 1996/97, Turkey's cotton imports grew from 420,000 bales to 1.1 million bales. The U.S. is the largest supplier of Turkey's cotton import needs and the U.S. share of the Turkish market is projected to be 30% for 1996/97, up from 18 percent in 1991/92. Assuming stable cotton production and continued growth in the Turkish textile sector, most observers expect Turkey to import increasing amounts of cotton in the foreseeable future. Competitive U.S. exports will likely continue to capture a significant share of these potential imports.