COTTON: WORLD MARKETS AND TRADE July 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 328, July 11, 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 August 13, 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 Pertacious Felton Summer Intern 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 86.9 million bales, down 600,000 bales from the initial projection. The U.S. cotton production forecast is 18 million bales, down 500,000 bales from last month's forecast. World cotton production for MY 1996/97 is estimated at 88.1 million bales, down 212,000 bales from last month's estimate. U.S. cotton production is estimated at 18.9 million bales, unchanged from last month's estimate. World cotton consumption for MY 1997/98 is forecast at 88.1 million bales, down 400,000 bales from the initial projection. The U.S. cotton consumption forecast is 11.0 million bales, unchanged from last month's forecast. World cotton consumption for MY 1996/97 is estimated at 86.4 million bales, down 310,000 bales from last month's estimate. U.S. consumption is estimated at 10.85 million bales, down 50,000 bales from last month's estimate. World cotton exports for MY 1997/98 are forecast at 27.5 million bales, up 300,000 bales from the initial projections. The U.S. cotton exports forecast is 7.1 million bales, down 200,000 bales from last month's forecast. World cotton exports for MY 1996/97 are estimated at 26.7 million bales, basically unchanged from last month's forecast. U.S. exports are estimated at 7.05 million bales, slightly down from last month's estimate. World cotton ending stocks for MY 1997/98 are forecast at 35.2 million bales, down 100,000 bales from last month's estimate. U.S. cotton ending stocks are forecast at 4.0 million bales, above 200,000 bales from last month's forecast. World cotton ending stocks for MY 1996/97 are forecast at 36.6 million bales, up 240,000 bales from last month's estimate. U.S. cotton ending stocks are estimated at 4.1 million bales, slightly from last month's estimate. World Situation World cotton production for MY 1997/98 is forecast at 86.9 million bales, down 600,000 bales from last month's forecast. Production in 1997/98 is forecast 1.1 million bales below last season's crop. Decreases in the production forecasts for China, India, the United States, and Mexico more than offset increases in the forecasts for Argentina, Brazil, Franc Zone Africa, Greece, Pakistan, Central Asia and Paraguay. World cotton production for MY 1996/97 is estimated at 88.1 million bales, down 212,000 bales from last month's estimate. Decreases in the production estimates for Benin, Brazil and other countries more than offset other upward production adjustments. World cotton consumption for MY 1997/98 is forecast at 88.1 million bales, down 400,000 bales from last month's forecast. Consumption in 1997/98 is forecast 1.7 million bales, or 2 percent, above last season's level, mainly due to the increases in the consumption estimates for China, India, Indonesia, Pakistan, Mexico, the United States, Turkey, Brazil and Uzbekistan. World cotton consumption for MY 1996/97 is estimated at 86.4 million bales, down 310,000 bales from last month's estimate. Decreases in the consumption estimates for Brazil, Pakistan, and Thailand more than offset the increases in the consumption estimates for India and Taiwan. World cotton exports for MY 1997/98 are forecast at 27.5 million bales, up 300,000 bales from last month's estimate. Exports in 1997/98 are forecast 869,000 bales above the current season's estimate, as increased exports from Australia, Franc Zone Africa, Egypt, Pakistan, Central Asia, Sudan and Paraguay more than offset decreases in India and Mexico. World cotton exports for MY 1996/97 are estimated at 26.7 million bales, basically unchanged from last month's estimate. The increases in the export estimates for Argentina, Spain and Uzbekistan were offset by the decreases in the export estimates for Australia, Syria and other exporting countries. World cotton ending stocks for MY 1997/98 are forecast at 35.2 million bales, down 100,000 bales from last month's forecast. Ending stocks in 1997/98 are forecast 1.3 million bales below the current season's estimate, mainly due to reduced carry-over stocks in China, India and Turkmenistan. World cotton ending stocks for MY 1996/97 are estimated at 36.6 million bales, up 240,000 bales from last month's estimate. The decreases in the ending stocks estimates for Argentina, Brazil and Uzbekistan were more than offset by the increases in the ending stocks estimates for China, India, Syria and other countries. Cotton Prices The 1996/97 Cotlook A-Index averaged 80.51 cents/lb. during June, up from May's average of 79.28 cents/lb. The A-Index which began the month at 80.00 cents/lb. ended June 26 at 81.40 cents/lb. The Central Asian quote was the lowest in the Index, averaging 78.78 cents/lb. During June, the California/Arizona and Memphis Territory quotes were above the A-index by an average of 5.20 cents/lb. and 1.42 cents/lb., respectively. July 97 futures prices on the New York Cotton Exchange remained range-bound in June. The July contract which began the month at 73.36 cents/lb. closed June 30 at 73.70 cents/lb. Fluctuations in the weekly export sales reports, a smaller U.S. Census Bureau's seasonally adjusted rate of consumption for the month of May, and expectations of a downward revision in USDA's planted area estimate provided the market with mixed signals. U.S. Highlights The seasonally adjusted daily rate of U.S. cotton consumption in May amounted to 41,460 bales (480-lb), below April's level of 41,980 bales. A total of 863,820 bales were consumed during four weeks in May, compared with 867,350 bales in April (4 weeks). The seasonally adjusted annualized consumption rate for the month of May was 10.82 million bales, down from April's 10.96 million bales. Domestic mill buying remained slow in May. Purchases were limited for prompt and nearby shipments. A small volume of cotton was purchased for second through fourth quarter 1998 delivery. Consumer demand for textile goods decreased in May. Sales of denim materials, housewares, and sales yarn also declined but were considered to be fair. Sales of gray cloth and industrial goods remained steady. Demand for casual apparel and infant wear was good. Most mills operated on a four to five day work week. Cotton stocks on hand in consuming establishments during May totaled 694,700 bales (480-lb), down from 698,213 bales in April. Stocks held in public storage and at compresses totaled 5 million bales, down from 6.2 million in April. Active spindles in place in May 1997 totaled 5.6 million, of which 2.6 million were dedicated to 100-percent cotton, compared with 6.3 million and 2.7 million, respectively, during the same period in 1996. Cotton's share on the cotton spindle system was 77 percent. U.S. cotton exports for April totaled 711,000 bales, 16-percent below the 848,000 bales in March, and 23-percent above April 1996 exports, according to the U.S. Bureau of the Census. The leading markets in April were China, Mexico, Japan, Turkey, Korea, Indonesia and Taiwan. U.S. cotton imports for April totaled less than 500 bales compared with 14,000 bales in April 1996, according to the U.S. Bureau of the Census. India was the main source for imports in April. International Highlights Egypt The government of Egypt is continuing a privatization program in the cotton industry. In 1996, it sold off 54 to 63-percent of its holdings in 4 public sector textile companies. The government plans to privatize all 31 textile firms by the year 2000; however, this goal may be difficult to reach because the industry is characterized by over employment, some mills are antiquated, and the government's pricing policy for cotton has led to losses to private sector investors in textile mills. Because many textile companies lack liquidity, the government has approached European and Asian investors who may be interested in leasing, rather than buying textile companies. In addition to privatizing textile companies, the government of Egypt has leased 19 cotton gins to private operators in 1995; however, by 1997 the number decreased to 10 because several companies were losing money, due to the relatively high cost of domestic cotton, which the government maintains at 20 to 30-percent above the price international buyers are willing to pay. This elevated price has had a negative impact on exports, which are expected to rise to 400,000 bales in 1997/98, but are one-half the level exported 15 years ago. In addition, ending stocks have risen significantly over the last few years, with a projected increase in 1997/98 to 850,000 bales. In order to realize future growth in textile and raw cotton exports, privatization will need to include a withdrawal of government interference in pricing and other policies, and enhanced managerial, technical, and export marketing skills of investors. Greece Though abundant rainfall in the spring of 1997 has caused delays during sowing, Greece's production is expected to increase to 1.75 million bales from an estimated 1.38 million during MY 1996/97. The increase in production has helped to boost Greece's 1997/98 export forecast to 1.1 million bales, 14 percent above the 1996/97 estimate. The increase in exports projects Greece to be the fifth largest exporter for MY 1997/98 behind the United States, Uzbekistan, Franc Zone Africa, Australia, and Argentina, respectively. Most of Greece's cotton crop will likely be exported to other European Union countries as well as Turkey, Bulgaria, and Indonesia, in competition with U.S. cotton exports to these markets. Cotton remains the major field crop for both area and farmer income, in spite of the reduction in areafrom 420,000 hectares in MY 1996/97 to a projected 390,000 for MY 1997/98. During 1997/98, the cotton crop coupled with stocks should be sufficient to cover domestic consumption and still export over 60 percent of production. However, Greece and Spain, the main cotton producers of the EU, account for only about 23 percent of the EU's total cotton needs. Greek cotton consumption is also projected to increase as a result of its strong textile sector which, according to industry sources, prefers cotton fabrics to synthetics. Domestic consumption of yarn has risen in spite of competition from imported items produced at lower cost. Yarn production for 1996 reached approximately 130,000 metric tons (MT) compared to only 80,000 MT ten years ago. Yarn produced of cotton fiber accounts for nearly 60 percent of total yarn production in Greece. Approximately 60 percent of yarn production is usually exported, mainly to Western Europe. Cotton Sector of the Taiwanese Textile Industry Rebounds The textile industry, the second largest export-driven industry next to the electronics and electrical products in Taiwan, has been experiencing difficulty competing in the world market due to high labor costs and labor shortages. As a result, the total spinning capacity, primarily for blended yarn, decreased in 1995 by 8-percent compared with 1994. Many less efficient old spindles were removed, and several operations were moved to neighboring Southeast Asian countries. Due to a strong preference for cotton products, the cotton sector of the industry, however, is currently rebounding. Cotton consumption in Taiwan declined in the early 1990's due to the difficulties facing the textile sector. However, as a result of the increased demand for high count combed cotton yarn, cotton consumption in Taiwan is currently on the rebound. During MY 1995/96 total mill use of cotton was 1.4 million bales, up 24 percent from the previous year. The cotton consumption is expected to be sustained with total mill use for MY1996/97 and MY1997/98 forecast at over 1.4 million bales. The rebound in the mill use of cotton is reflected by the increased production of yarn and fabric, which increased 5 percent in 1996 after declining through the early 1990's. Despite a decline in the total spinning capacity, active spindles spinning 85 percent or more cotton increased by 7 percent between 1994 and 1995. Since Taiwan does not produce any cotton, the Taiwanese textile industry depends on imports for its cotton needs. Of a total 1.4 million bales imported in MY 1995/96, over 255,000 bales of cotton were sourced from the United States. Although the U.S. import share declined in 1995/96, the United States remained a leading supplier and accounted for 18 percent of total cotton imports. Other major suppliers to Taiwan include Pakistan, Australia, Franc Zone Africa, and Argentina. The industry also imports significant quantities of cotton yarn and fabric. During 1996, Taiwan's cotton yarn imports totaled 72,186 metric tons, a 7 percent increase from the previous year. Pakistan was the leading source accounting for 64 percent of the imports, followed by India which accounted for 22 percent. During 1996, Taiwan imported 153 metric tons of cotton yarn from the United States, 93 metric tons over the previous year's level. Although the United States faces strong competition from other Asian countries, the Taiwanese cotton yarn market offers the potential for expansion of U.S. cotton yarn exports. To remain competitive, the Taiwanese textile industry has focused on upgrading equipment, specializing in high quality products, and making offshore investments. Additionally, the government of Taiwan has recently amended the Employment Service Law which lengthens the stay of foreign laborers to three years from the previous two years (effective May 23, 1997). This is expected to alleviate the existing problem of labor shortage. Therefore, despite the problems facing the industry, Taiwan's cotton use is expected to expand somewhat in the immediate future and to remain a major market for U.S. cotton.