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SEPTEMBER, 1997
COTTON: WORLD MARKETS AND TRADE
September 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 330, September 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 October 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
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 88.8 million
bales, up 1.48 million bales from the last month's projection.
The U.S. cotton production forecast is 18.42 million bales, up
over 635,000 bales from last month's forecast.
World cotton production for MY 1996/97 is estimated at 88.7
million bales, up 226,000 bales from last month's estimate. U.S.
cotton production is estimated at 18.94 million bales, unchanged
from last month's estimate.
World cotton consumption for MY 1997/98 is forecast at 89.6
million bales, up 1.1 million bales from the previous month's
projection. The U.S. cotton consumption forecast is 11.30 million
bales, up 300,000 bales from last month's forecast.
World cotton consumption for MY 1996/97 is estimated at 87.8
million bales, up 1.2 million bales from last month's estimate.
U.S. consumption is estimated at 11.12 million bales, up 267,000
bales from last month's estimate.
World cotton exports for MY 1997/98 are forecast at 27.9 million
bales, up 165,000 bales from the previous month's projection. The
U.S. cotton exports forecast is 7.20 million bales, up 100,000
bales from last month's forecast.
World cotton exports for MY 1996/97 are estimated at 26.4 million
bales, down 150,000 bales from last month's estimate. U.S.
exports are estimated at 6.95 million bales, slightly below last
month's estimate.
World cotton ending stocks for MY 1997/98 are forecast at 35.2
million bales, down 710,000 bales from last month's projection.
U.S. cotton ending stocks are forecast at 3.70 million bales, down
100,000 bales from last month's forecast.
World cotton ending stocks for MY 1996/97 are estimated at 36.3
million bales, down 679,000 bales from last month's estimate.
U.S. cotton ending stocks are estimated at 3.82 million bales,
down 280,000 bales from last month's estimate.
World Situation
World cotton production for MY 1997/98 is forecast at 88.8 million
bales, up 1.48 million bales from last month's forecast.
Production in 1997/98 is forecast slightly above last season's
crop. Increases in the production forecasts for the United
States, China, India, and Pakistan more than offset the decreases
in the forecasts for Greece and other countries.
World cotton production for MY 1996/97 is estimated at 88.7
million bales, up 226,000 bales from last month's estimate. The
increase in the production estimate for India was partially offset
by the decrease in Australia's production estimate.
World cotton consumption for MY 1997/98 is forecast at 89.6
million bales, up 1.1 million bales from the previous month's
projection. Increases in the consumption forecasts for China,
India and the United States were partially offset by the reduction
in Brazil's forecast. Consumption in 1997/98 is forecast 1.8
million bales, or 2 percent, above last season's level.
World cotton consumption for MY 1996/97 is estimated at 87.8
million bales, up 1.2 million bales from last month's estimate,
mainly due to the increased consumption estimates for China,
India, and the United States.
World cotton exports for MY 1997/98 are forecast at 27.9 million
bales, up 165,000 bales from the previous month's projection, as
increased export forecasts for Pakistan and the United States were
partially offset by the decreased projection for Greece. Exports
in 1997/98 are forecast 1.5 million bales, or 3 percent, above
last season's estimate.
World cotton exports for MY 1996/97 are estimated at 26.4 million
bales, down 150,000 bales from last month's estimate. Slight
decreases in the export estimate for Australia and other countries
were partially offset by the increased export estimate for Peru.
World cotton ending stocks for MY 1997/98 are forecast at 35.2
million bales, down 719,000 bales from last month's projection.
The increases in the ending stocks forecast for India and
Pakistan, were more than offset by the decreases in the ending
stocks estimate for China. Ending stocks in 1997/98 are forecast
1.1 million bales below last season's estimate.
World cotton ending stocks for MY 1996/97 are estimated at 36.3
million bales, down 679,000 bales from last month's estimate. The
increases in the ending stocks estimates for India and other
countries were more than offset by the decreases in the ending
stocks estimates for China and the United States.
Cotton Prices
The 1997/98 Cotlook A-Index averaged 81.28 cents/lb. during
August, down from July's 1996/97 average of 81.34 cents/lb. The
A-Index which began the month at 81.55 cents/lb. ended August 27
at 80.10 cents/lb. The African quote was the lowest in the Index,
averaging 77.97 cents/lb. During August, the California/Arizona
and Memphis Territory quotes were above the A-index by an average
of 4.41 cents/lb. and 2.91 cents/lb., respectively. October 97
futures prices on the New York Cotton Exchange fell in July. The
October contract which began the month at 75.18 cents/lb. closed
August 29 at 72.7 cents/lb. Tight world supplies, strong weekly
export sales reports, a larger U.S. Census Bureau's seasonally
adjusted rate of consumption for the month of June, and
expectations of higher U.S. and foreign crop production provided
the market with mixed signals.
U.S. Highlights
The seasonally adjusted daily rate of U.S. cotton consumption in
July amounted to 44,007 bales (480-lb), slightly above June's
level of 42,847 bales. A total of 773,802 bales (480-lb) were
consumed during four weeks in July, compared with 1,043,586 bales
in June (5 weeks). The seasonally adjusted annualized consumption
rate for the month of July was 11.49 million bales, up from June's
11.18 million bales. Domestic mills purchased a light volume of
cotton in July for prompt and nearby shipments. A moderate volume
of primarily Delta and Southeastern growth cotton was purchased
for prompt through third quarter 1998 delivery. Housewares items
remained top sellers. Mill production of sales yarn remained
heavy. Consumer interest in denim products decreased. Sales of
gray cloth and industrial goods were lackluster. Demand for
casual apparel and infant wear remained steady. Most mills
operated on a five day work week.
Cotton stocks on hand in consuming establishments at the end of
July totaled 703,215 bales (480-lb), down from 711,929 bales in
June. Stocks held in public storage and at compresses totaled 3.1
million bales, down from 4.0 million in June. Active spindles in
place in July 1997 totaled 5.3 million, of which 2.6 million were
dedicated to 100-percent cotton, compared with 5.7 million and 2.7
million, respectively, during the same period in 1996. Cotton's
share on the cotton spindle system was 78 percent.
U.S. cotton exports for June totaled 614,000 bales, slightly below
the 619,000 bales in May and 56-percent above June 1996 exports,
according to the U.S. Bureau of the Census. The leading markets
in May were China, Turkey, Mexico, Korea, Japan, Indonesia, and
Brazil.
U.S. cotton imports for May totaled less than 1,000 bales compared
with 115,000 bales in June 1996, according to the U.S. Bureau of
the Census. Uzbekistan was the main source for imports in June.
International Highlights
Bangladesh
Cotton consumption in Bangladesh continues to increase due to the
expansion of the local spinning industry. Cotton consumption is
expected to increase by 11 percent in 1997/98 over 1996/97 levels
to 700,000 bales. The private sector dominates the cotton
industry, with over 90 percent of cotton consumption by private
mills, an increase from 30 percent in the mid eighties.
Based on industry projections, it is expected that the 1.9 million
working spindles in Bangladesh will increase to 5.0 million by
2005. In order to meet the expanding demand for raw cotton,
Bangladesh has steadily increased its cotton imports, which are
forecast to reach 620,000 bales in 1997/98. With government
subsidies for locally produced yarn and fabric, special trading
terms for textile exports to the European Union, and domestic
demand for cloth exceeding the population growth, it is expected
that cotton imports will continue to increase by 10 percent per
year over the next few years.
The United States is the second largest supplier of raw cotton to
Bangladesh, with a 20 percent market share. The CIS countries are
the main U.S. competitors, holding over 40 percent of Bangladesh's
cotton market. While Pakistan is estimated to increase its
production in 1997/98, and may export surplus production to
Bangladesh, many buyers are willing to pay a premium for U.S.
cotton because of its better quality and timeliness of delivery,
and U.S. exports are expected to grow over the long term.
China
In August, the National Cotton Policy Council (NCPC) met to set
China's cotton policy for the marketing year beginning in October.
The provisions of the policy reforms, aimed at encouraging greater
use of domestic cotton and the reduction of cotton imports, were
outlined by Vice Premier Zhu Rongji as:
1) Initially, 500,000 metric tons of cotton from
Xinjiang will be sold to domestic mills with no value-added tax (VAT) charged, provided that the semi-finished products are then exported.
2) The price of Xinjiang cotton will be reduced to US
$241 per metric ton.
3) The Bank of China will lend money to mills to buy
cotton from Xinjiang without requiring the kind of
detailed review of the financial well-being of those
enterprises that normally is conducted before loans
can be approved.
4) All cotton producing provinces will be allowed to
reduce the price at which cotton is sold to mills by
up to 6 percent.
5) Establishment of a cotton exchange in which prices
for domestic cotton are permitted to move up and down
within limits on a weekly if not daily basis,
including giving discretion to provincial authorities
to negotiate sales of cotton to mills.
5) Granting of more freedom to farmers to not produce
cotton in areas where yields are low and the costs of
producing cotton are high relative to other crops.
However, many aspects of the policy reform remain unclear. For
instance, whether the VAT will be waived entirely, or if it will
be charged initially then returned when the equivalent amount of
the product is exported, as is the case with joint venture mills
that import raw cotton and export semi-finished products. Also,
whether the 6-percent reduction in price will be in addition to or
take the place of the 4-percent reduction allowed last year.
Vice Premier Zhu Rongji affirmed that cotton is a strategic
material and that the "three no's" policy -- no free prices, no
direct transactions between farmers and mills, and no management
of cotton marketing by provincial authorities--regarding cotton
will continue. Rongji also suggested several steps that must be
taken to ensure that past problems of excess supplies of expensive
domestic cotton do not reappear as soon as current stockpiles are
reduced. These included the establishment of a regular cotton
exchange in which more flexibility on pricing would be allowed.
The effect of China's policy changes on world trade is
undetermined, especially in light of previous Chinese policy
proposals also aimed at limiting imports and reducing stocks.
Instead of stopping or slowing down, imports increased over the
months immediately following the previous announcements, and
remained steady. Though US cotton prices remain competitive, US
sales to China slowed during the period following the meeting of
the NCPC. Many traders are reportedly taking a "wait and see"
approach, in part for fear of offending the government by
appearing to continue business as usual (i.e., imports) in the
immediate aftermath of the announced reforms. The slow sales
could also be due to expectations of further price decreases
following an anticipated increase in USDA's 1997/98 cotton
production estimate.
The world cotton industry is greatly influenced by China's cotton
policy. Despite a large stock-pile of cotton, China continues to
import substantial amounts of cotton lending strength to world
prices. China is the world's largest cotton consumer and
importer, and for the previous marketing year was the largest
producer. Based upon reports of lower planted area, MY 1997/98's
production is projected to drop to 17.5 million bales from the
previous year's 19.3 million. China is projected to be the leading
importer of U.S. cotton during 1997/98, for the fourth consecutive
marketing year. China is an important market for U.S. cotton to
the tune of 1.9 million bales of cotton valued at U.S. $727
million shipped in CY 1996. That represents 61 percent of China's
total 1996 imports of 3.1 million bales. During marketing year
1997/98, the United States is expected to supply at least half of
China's forecasted 2.7 million bale import level.
Indonesia's Imports of U.S. Cotton
The United States is forecast to supply roughly one third of
Indonesia's cotton imports for MY 1997/98. This year, exports of
U.S. cotton to Indonesia should recoup some market share,
recovering from a dip in performance last year, MY 96/97, when
U.S. market share garnered a quarter of Indonesia's cotton
imports. The U.S.'s best recent performance in the Indonesian
cotton import market was in MY 94/95 when the U.S. supplied 45
percent of all imports. The past two years have shown ups and
downs in U.S. market share (MY 95/96, 36 percent; MY 96/97, 25
percent) but the outlook is positive: U.S. cotton should account
for between 30 percent to 40 percent of Indonesia's imports for MY
97/98.
The U.S. has sustained success as a cotton exporter to Indonesia's
textile industry. In the past five marketing years Indonesia has
ranked among the top five customers of U.S. raw cotton. This
Asian nation has a relatively rapidly expanding economy even among
its fast-growing neighbors. In the last five years alone,
Indonesia's real GDP growth averaged more than seven percent per
year. During the 1990's the textile sector has grown at an
average of 5 percent, compared to the world average of below three
percent. The United States has been supplying this industry as
it grows. The recent depreciation of Indonesia's currency will
make U.S. cotton relatively more expensive to import, but will
also make Indonesia's value-added textile exports more competitive
in world markets. Textile exports are likely to continue to grow
in volume and value.
In the early months of MY 1996/97 cotton imports grew rapidly as
Indonesian domestic cotton consumption climbed and textile export
volume grew. Over the rest of the marketing year the growth was
more modest, reaching 485,000 tons, or overall a 2 percent growth
over the previous year. As top exporter, the United States was
followed by Australia, the Newly Independent States of the Former
Soviet Union, Tanzania, and India. Price considerations explain
the latter's inroads into the Indonesian market for cotton. To
help U.S. cotton exporters compete in this environment, the U.S.
export credit guarantee program, or GSM-102 is available. It has
been operational for cotton to Indonesia since 1993. The program
allows international buyers to purchase U.S. cotton or other
commodities from private U.S. exporters, with U.S. banks providing
financing to the importer's bank on commercial terms. A main
incentive of the program is that the Commodity Credit Corporation
of the USDA guarantees the payment to the U.S. bank, in case of
default. GSM registered cotton sales to Indonesian importers
currently total $13.5 million. Indonesian traders and industry
sources forecast that the United States will continue to be the
leading cotton supplier to Indonesia.
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