COTTON: WORLD MARKETS
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 332, November 10,
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
The next issue of the Cotton circular will be available
electronically after 3:30 pm local time on December 12, 1997.
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
J. Lawrence Blum, Director
Lana Bennett, Deputy Director, Analysis
Abdullah A. Saleh, Group Leader, Cotton, Tobacco, and Seeds Analysis
Jon Ann Flemings Cotton Analyst for FSU, Europe & East
Andrew Levin Cotton Analyst for Africa, the Middle East & South Asia
Ann Murphy Cotton Analyst for the Americas & South Asia
Michelle Lucas Electronic Word Processor
Ron Roberson Chairperson for Foreign Area and Production, PECAD
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World & United States Situation
World cotton production for MY 1997/98 is forecast at 90.2
million bales, up 308,000 bales from last month's forecast.
Increased 1997/98 production estimates for China, the United
States, the African Franc Zone, Syria, and Australia, are
partially offset by reductions for Uzbekistan, Pakistan, India,
Turkey and others. U.S. cotton production for MY 1997/98 is
forecast at 18.85 million bales, up 438,000 bales from last
month's forecast, mainly due to increases in the Delta region.
World cotton production for MY 1996/97 is estimated at 89.1 million bales, up 113,000 bales from last month's estimate, due mainly to an increase in Syria. U.S. cotton production for MY 1996/97 is estimated at 18.94 million bales, unchanged from last month's estimate.
World cotton consumption for MY 1997/98 is forecast at 89.8 million bales, down 340,000 bales from the previous month's projection. Decreases in the consumption forecasts for Brazil, Pakistan, and Indonesia, were partially offset by the increase in the U.S. U.S. cotton consumption for MY 1997/98 is forecast at 11.40 million bales, a 100,000 bale increase over last month's forecast.
World cotton consumption for MY 1996/97 is estimated at 88.4 million bales, up 265,000 bales from last month's estimate, mainly due to increased estimates for Thailand and Korea. U.S. consumption is estimated at 11.13 million bales, unchanged from the previous month's estimate.
World cotton exports for MY 1997/98 are forecast at 27.0 million bales, down 370,000 bales from the previous month's projection, as decreased export forecasts for Uzbekistan, Pakistan, Turkmenistan, and Azerbaijan were partially offset by the increases for Syria, Australia, and the United States. U.S. cotton exports for MY 1997/98 are forecast at 7.0 million bales, up 100,000 bales from last month's forecast as a larger crop and continued strong early-season export sales are expected to raise the U.S. share of world trade.
World cotton exports for MY 1996/97 are estimated at 26.7 million bales, up 139,000 bales from last month's estimate, mainly due to increases for Syria and Korea. U.S. cotton exports for MY 1996/97 are estimated at 6.87 million bales, unchanged from the previous month's estimate.
World cotton ending stocks for MY 1997/98 are forecast at 36.4 million bales, up 576,000 bales from last month's projection, but equal to the beginning level. Increases in the ending stocks forecast for China, the United States, and Turkmenistan account for this change. U.S. cotton ending stocks for MY 1997/98 are forecast at 4.4 million bales, up 200,000 bales from last month's forecast.
World cotton ending stocks for MY 1996/97 are estimated at 36.4 million bales, virtually unchanged from last month's estimate. U.S. cotton ending stocks for MY 1996/97 are estimated at 3.97 million bales, the same as the previous month's estimate.
The 1997/98 Cotlook A-Index averaged 77.55 cents/lb. during October, down from September's average of 79.61 cents/lb. The A-Index which began the month at 78.15 cents/lb. ended October 30 at 77.35 cents/lb. The African quote was the lowest in the Index, averaging 76.47 cents/lb. During October, the California/Arizona and Memphis Territory quotes were above the A-index by an average of 4.62 cents/lb. and 2.88 cents/lb., respectively. December '97 futures prices on the New York Cotton Exchange fell in October. The December contract which began the month at 71.64 cents/lb. closed October 31 at 72.32 cents/lb.
The seasonally adjusted daily rate of U.S. cotton consumption in September amounted to 44,438 bales (480-lb), above August's level of 42,797 bales. A total of 1,101,672 bales (480-lb) were consumed during five weeks in September, compared with 868,138 bales in August (4 weeks). The seasonally adjusted annualized consumption rate for the month of September was 11.60 million bales, up from August's 11.17 million bales. Domestic mill buying was active. A light volume of cotton was purchased for prompt and nearby delivery. Domestic mills purchased a moderate volume of cotton in September for first through fourth quarter 1998 delivery. Demand for new-crop cotton was good, with interest centering primarily around Texas and Delta growths. Consumer interest in denim products and casual wear was excellent. Mill sales of housewares products continued strong, while sales of infant clothing were moderate. Gray cloth and industrial goods continued to be steady sellers. Most mills operated on a five day work week.
Cotton stocks on hand in consuming establishments at the end of September totaled 610,259 bales (480-lb), down from 662,259 bales in August. Stocks held in public storage and at compresses totaled 2.0 million bales, down from 2.4 million in August. Active spindles in place in September 1997 totaled 5.3 million, of which 2.6 million were dedicated to 100-percent cotton, compared with 5.5 million and 2.5 million, respectively, during the same period in 1996. Cotton's share on the cotton spindle system was 79 percent.
U.S. cotton exports for August totaled 458,000 bales, below the 501,000 bales in July but 44-percent above August 1996 exports, according to the U.S. Bureau of the Census. The leading markets in August were Mexico, China, Brazil, Indonesia, Korea and Japan.
U.S. cotton imports for August totaled 1,000 bales compared with 156,000 bales in August 1996, according to the U.S. Bureau of the Census. Uzbekistan was the main source for cotton imports in August.
The Ugandan economy, including cotton production, is emerging from nearly three decades of hardship. This season, however, cotton's recovery is slowing down. A civil war first upset cotton cultivation in the early 70's. Later, the inefficiencies of state-owned enterprises stalled production through the 80's. Then the cotton sector grew rapidly in the 1990's as Uganda privatized the monopoly cotton lint board, gins and a textile mill, and made steady progress on other economic fronts. Consequently, cotton resumed a higher profile in the economy as a foreign exchange earner. In 1995/96 cotton export sales earned $15 million. Recently the World Bank provided $32 million in aid to the sector to privatize and revitalize cotton gins.
This fertile central African nation was once a major exporter of cotton. Production peaked in 1969/70 at 397,000 bales. In the 1970's the nation lurched into economic chaos and land once planted to cotton was converted to subsistence farming. Cotton production dipped to 9,000 bales in 1987/88 but dramatically increased in the mid-1990's. In this decade the Ugandan economy underwent a transformation and showed healthy signs of recovery from its previous disincentives to farmers, ginners, and investors. The new Ugandan economy has attracted cotton production investments from Israel, Egypt, and South Africa. Uganda is projected to produce 50,000 bales this next season. Of these, 40,000 bales will be exported to mostly Western European destinations.
At present levels of production, Ugandan cotton is not a significant competitor to U.S. cotton. At the close of last season's harvest, the Ugandan government declared its goal to produce 300,000 bales by the turn of the century. It is now apparent that Uganda is unlikely to make that target. Reasons for reduced planting intentions this season have been cited as: no more free improved seed for small cotton farmers, the disappointment of poor prices this past season, limited access to credit, and bad weather at planting time. Along with privatization has come the realization that efficiencies and profitability are linked to economies of scale. However, smaller producers have begun to complain as bigger business is taking an ascendent role in production. Nevertheless, privatization continues. Nine of the total 37 gins nation-wide have been sold to private interests and eleven others are coming up for sale before the end of calendar year 1997.
Southeast Asia's Cotton Imports
Expected to be Negatively Impacted
for MY 1997/98
Stephen MacDonald, Economic Research Service
Southeast Asia Revised for 1996/97 and 1997/98
The continued currency devaluations in Southeast Asia and the associated financial disruptions in those countries have reduced prospects for consumption and imports of cotton in Thailand, Indonesia, Malaysia, and the Philippines in 1997/98. However, the forecasts for Southeast Asia's 1997/98 cotton consumption have been revised downward only 2 percent this month because of upward revisions to the data before 1997/98.
In some cases, 1996/97 imports and consumption have been revised upward this month as official trade data has become available to USDA analysts in Washington. These upward revisions for 1996/97 have in turn suggested that Southeast Asia entered the 1997/98 marketing year with a higher capacity utilization than USDA had previously believed. This reassessment has partially offset the negative forecast adjustments in USDA's November estimates when compared with last month. However, USDA has revised downward its forecasted annual growth rates for cotton consumption, imports, and stocks in Southeast Asia for 1997/98 relative to 1996/97. In October, the region's consumption and imports were expected to rise 3 percent from previous year levels, but USDA now forecasts a 2 percent decline in consumption and a 7 percent decline in imports.
The largest 1996/97 revisions were made in Thailand, which has also undergone the largest currency devaluation and the largest reduction in expected Gross Domestic Product for 1997 and 1998. USDA's 1997/98 November forecast for Thailand's cotton consumption was reduced 9 percent from October and nearly 30 percent from the previous year. In October, the USDA forecast reflected a reduction if only 4 percent from the previous year.
There were no revisions in Indonesia's 1996/97 estimates, so the 7 percent reduction in forecast cotton consumption in 1997/98 fully reflects USDA's current assessment of the impact of devaluation and financial disruption for Indonesia. Indonesia's imports were revised down 9 percent. Indonesia has traditionally had one of the lowest ratios of stocks to use in the world, constraining its ability to defer importing by consuming from stocks.
The November forecast reflects consumption and import increases for 1996/97 for both Malaysia and the Philippines. Estimates for 1997/98 were raised consistent with the adjustment in 1996/97 but the revised forecasts now reflect negative, rather than positive annual growth.
Analysis of the Impact of Recent Events in Southeast Asia
The impact of the devaluations and financial disruption in Southeast Asia on the region's consumption of raw cotton by textile mills can be broken down into 2 broad categories, income and price. The price effects can be further broken down to 3 categories, and of these four categories of impacts, 3 are negative. The single positive impact--increased export competitiveness for textiles--is also likely to have the longest lag. The net impact on 1997/98 cotton consumption and imports is therefore negative.
The consensus in the economic literature on price and income effects on trade is that income effects have shorter lags than price effects (see Goldstein and Khan in Handbook of International Economics, Vol.1). Southeast Asia's GDP in 1997 and 1998 is now expected to be lower than consumers forecast at the beginning of the marketing year. Clothing is a semi-durable good and consumers will decrease their purchases more than they will of food and other immediately consumed products. According to the International Cotton Advisory Committee, about 40 percent of Southeast Asia's mill consumption of cotton is for domestic end-use (spinning and weaving mills in the region may actually export a larger share of their output, but imports of yarn and cloth are partially offsetting).
This domestic end-use consumption will also be reduced by the increased cost of textiles produced with higher-priced imported fibers, but with a lag as fiber that was imported or purchased before the devaluation is consumed. Also, fiber roughly accounts for half the cost of final textile goods, with the remaining costs derived from domestic value-added. Domestic costs will rise substantially less than imported inputs, so the cost of textiles will probably rise by less than half of the increase for imported fiber. Also, Southeast Asian countries produce man-made fibers, so the increased cost of textiles can be further decreased by substituting fibers. Thailand and the Philippines have to import feedstock for producing man-made fibers, so opportunities for reducing costs through substitution will be smaller than in Indonesia and Malaysia.
The second and most immediate price effect is the increase in the cost of capital in the region. Some industrial fiber users may find the cost of capital prohibitive for a brief period as financial institutions regroup, and may consume less fiber for a short period. When consumption resumes, there is no reason to expect an acceleration of use to make up for this slowdown before the end of the 1997/98 marketing year.
The third price effect is the reduced dollar cost of Southeast Asia's value-added, which could boost textile exports of final goods. Intermediate textile products could also benefit both with respect to imports and exports, but by a lesser amount, since value-added is lower. Exchange rate effects are not exactly the same as price effects, and typically lags between exchange rate changes and trade volume changes can extend well beyond 1 year.
Two factors suggest that the lags for Southeast Asia should be shorter than those experienced by other countries such as the United States. One is that since Southeast Asian exchange rates were fixed rates, the direction and relative permanence of the change in exchange rates is clear: there will be no lag while producers and consumers gradually adjust their expectations for currency costs in response to a trend. Another is that since Southeast Asian exchange rates were fixed, trade expenditures were probably not hedged in foreign exchange markets, as they typically are for countries with floating exchange rates like the United States. Therefore, importers and exporters will feel the effect more rapidly and respond more rapidly. Nonetheless, a longer lag is likely for any expected cotton consumption gains stemming from improved textile trade balances in Southeast Asia than is likely for the negative effects of economic disruption, and a short term decline in the region's cotton consumption is therefore likely.