World & U. S. Situation
World cotton production for MY 1997/98 is forecast at 90.1 million bales, down 915,000 bales from last month's forecast. The decreased 1997/98 production estimate for India was partially offset by an increase in China. U.S. cotton production for MY 1997/98 is forecast at 18.98 million bales, unchanged from last month's forecast.
World cotton production for MY 1996/97 is estimated at 89.2 million bales, down 33,000 bales from last month's estimate. 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 88.6 million bales, down 679,000 bales from the previous month's projection, mainly due to the decreased consumption forecasts for India, Indonesia and Taiwan. U.S. cotton consumption for MY 1997/98 is forecast at 11.50 million bales, unchanged from last month's forecast.
World cotton consumption for MY 1996/97 is estimated at 88.6 million bales, unchanged from last month's estimate. 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 26.3 million bales, up 85,000 bales from the previous month's projection, as a decreased export forecast for India is partially offset by an increase in the United States. U.S. cotton exports for MY 1997/98 are forecast at 7.5 million bales, up 200,000 bales from last month's forecast.
World cotton exports for MY 1996/97 are estimated at 26.5 million bales, unchanged from last month's estimate. 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 38.0 million bales, down 364,000 bales from last month's projection, but 4 percent above the beginning level. Decreased 1997/98 ending stocks estimates for India and the United States were partially offset by an increased estimate for China. U.S. cotton ending stocks for MY 1997/98 are forecast at 4.0 million bales, down 200,000 bales from last month's forecast.
World cotton ending stocks for MY 1996/97 are estimated at 36.3 million bales, down 33,000 bales 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 68.86 cents/lb. during February, down from January's average of 71.34 cents/lb. The A-Index began the month at 69.45 cents/lb. and ended February 26 at 67.75 cents/lb. The African quote was the lowest in the Index, averaging 66.70 cents/lb. During February, the California/Arizona and Memphis Territory quotes were above the A-index by an average of 7.52 cents/lb. and 5.77 cents/lb., respectively. March '98 futures prices on the New York Cotton Exchange continued to fall in February. The March contract which began the month at 67.2 cents/lb. closed February 27 at 64.65 cents/lb.
The seasonally adjusted daily rate of U.S. cotton consumption in January amounted to 44,195 bales (480-lb), below December's level of 45,870 bales. A total of 848,580 bales (480-lb) were consumed during four weeks in January, compared with 950,776 bales in December (5 weeks). The seasonally adjusted annualized consumption rate for the month of January was 11.53 million bales, down from December's 11.97 million bales. Domestic mill buying was light, with most purchases for second through fourth quarter 1998 delivery. Demand for coarse count yarns was slightly stronger than last fall but well below a year ago. Fine count yarn demand remained strong. Housewares and fleece sales were strong, while consumer interest in denim products was fair. Most mills operated on a five day work week.
Cotton stocks on hand in consuming establishments at the end of January totaled 634,548 bales (480-lb), up from 588,119 bales in December. Stocks held in public storage and at compresses totaled 10.92 million running bales, down from 11.96 million in December. Active spindles in place in January 1998 totaled 5.5 million, of which 2.6 million were dedicated to 100-percent cotton, compared with 5.7 million and 2.6 million, respectively, during the same period in 1997. Cotton's share of the cotton spindle system approached 78 percent.
U.S. cotton exports for December totaled 774,000 bales, above the 581,000 bales for November, but 225,000 bales below the December 1996 exports, according to the U.S. Bureau of the Census. The leading markets in December were China, Mexico, Japan, Korea, Indonesia and Turkey.
U.S. cotton imports for December totaled 191 bales compared with 2,262 bales in December 1996, according to the U.S. Bureau of the Census. Mexico was the only source for cotton imports in December.
Cover Story: Extra Long Staple (Pima) Prospects Look Good
USDA's survey of producers' planting intentions will be published March 31; however, at the recent Agricultural Outlook Forum, USDA gave a preliminary estimate that U.S. cotton acreage will be down nearly 1 million acres in 1998 to 12.9 million. While the price decline for upland cotton has lead to a decreased planting estimate for upland cotton, it has stimulated increased interest, particularly among California farmers, in planting Extra Long Staple (ELS) Pima cotton.
Private estimates, including the National Cotton Council's annual cotton intentions survey conducted in late December, indicated ELS acreage will increase to 260-275,000 acres. USDA's preliminary estimate is within this range, which would result in a production increase from 537,000 bales in 1997 to 550,000 bales in 1998. The increased interest in planting Pima may be attributed to increased export opportunities for Pima as well as continued growth in domestic Pima consumption.
At a recent seminar by the Supima Association, cotton merchant William Dunavant, Jr. noted that the U.S. has been the largest exporter of ELS cotton for the past four years, despite the fact that Egypt is the largest producer. Among the highlights of his talk, Mr. Dunavant pointed out that ELS prospects in Peru had been washed out by El Nino rains leaving a deficit of approximately 45,000 bales (U.S. Pima commitments to Peru have reached 27,000 bales); India will continue to be a net importer of about 150,000 bales including 10,000 bales of Pima; and, CIS countries continue to have problems marketing their substantial ELS production. Mr. Dunavant noted that Egypt has shifted more acreage into Giza 86, which competes more favorably with Pima, and said "The big question for the world is, what is Egypt going to do about production and price for 1998-99?"
USDA's Agricultural Attache in Cairo recently reported that the Egyptian Government appears to be on the threshold of a significant policy change in regards to cotton production. In discussions several weeks ago, USDA learned that the Ministry of Agriculture is seriously considering not announcing a government procurement price for the 1998/99 marketing year. The objective is to reduce the total planted area from 900,000 feddan (1 feddan = approx. 1 acre) to 700-750,000 feddan. For the past two years, farmers have been able to sell their cotton to the government at prices higher than the international price. However, domestic consumption and exports have suffered as a result. As a result, Egypt's cotton stocks have tripled since 1995/96.
For now, Egypt's strategy appears to be one of leaving the farmers to decide for themselves what to do. If Egyptian farmers do not voluntarily lower their acreage (because of the uncertainty surrounding the procurement price), the government may then announce a lower procurement price as a way for forcing them to cut back on their plantings. So far in MY 1997/98, Egypt cotton export commitments are estimated at 280,000 bales, of which 75,000 bales are ELS varieties.
Total US Pima commitments as of February 26, 1998 have reached 450,000 bales. Current commitments to Japan have reached 120,000 bales, which reflects an increase in market share to this country from 56 percent in 1995/96 to 76 percent in 1997/98, and export opportunities to Asian countries look good for Pima over the long term, including Bangladesh, Taiwan, Korea, Indonesia and Thailand.
(Andrew Levin; 202-720-9488)
Since January, there have been unconfirmed reports that China may impose import quotas in 1998 due to burdensome domestic cotton stocks. According to a report from the Beijing office of the U.S. Agricultural Counselor, the Government of China (GOC) is enforcing a new requirement for traders to furnish China Customs with copies of their import licenses for each shipment. However, it is thus far unclear whether the import licenses constitute a new quota system.
The new licensing requirement applies only to state-owned mills, and does not affect imports through joint venture mills or wholly foreign-owned mills. The amount of China's cotton imports that are controlled by joint venture and wholly foreign owned mills is still in question. The estimates range from 25 to 50 percent, making it difficult to assess the impact of licenses on cotton imports.
Due to the recent currency devaluations in Southeast Asia, Chinese textiles face strong competitive pressures. Although the GOC announced recently that it would raise the export rebate on textiles from nine percent to eleven percent of the seventeen percent export tax, it appears that the slightly larger rebate will not be sufficient to counter the price effect of devaluations in other countries. According to sources, the textile industry has approached the government, requesting that the new import policy not be implemented and that the industry be allowed to purchase imported cotton, which is currently cheaper than domestic cotton.
In marketing year 1997/98, China is again projected to be the world's largest cotton importer, at 2.2 million bales - 1.4 million bales less than the imports during the previous marketing year. US cotton exports to China are forecast at 850,000 bales, about half the 1996/97 level. China has been the largest customer for US cotton for the previous 3 years. Given the increased consumption and imports in Mexico and decreased cotton imports by China, Mexico is expected to replace China as the leading market for US cotton this marketing year.
(Jon Ann Flemings; 202-690-1546)
Cotton plays a very important role in Turkey's economy, through consumption in the Turkish textile industry and textile exports to the European Union. Turkey's 1997/98 cotton production is estimated at 3.3 million bales, however, cotton production could increase significantly in future years with the Southeastern Anatolia Project, or GAP. GAP is a multipurpose, integrated development project comprised of dams, hydroelectric power plants and irrigation facilities. Nonetheless, with continued consistent growth in consumption, we expect Turkey to remain a major cotton importer.
The driving force behind Turkey's growing cotton imports is the expansion of its export-oriented textile industry, which is expected to consume 4.7 million bales of raw cotton this marketing year. Turkish textile exports valued at $8.8 billion in 1996 are expected to reach $10 billion in 1997 and account for about 38 percent of total exports. Currently, Turkey's textile industry is suffering from reduced returns due to the financial problems in Asia and the increased price of raw cotton. Though most Turkish textile exporters remain confident about the situation, continued problems may result in bankruptcy for some small to medium size firms that rely on the Asian market.
Turkey's cotton imports, which are expected to reach a record 1.5 million bales this marketing year, are mainly from the United States, Uzbekistan, and Turkmenistan. Partly due to the popularity of the GSM-102 program, imports of U.S. cotton are expected to account for one-third of cotton imports this season. Cotton currently accounts for more than half of GSM-102 use in Turkey, with registrations reaching $90.1 million in the first five months of this fiscal year. Turkey is the fifth largest US cotton market, with sales increasing significantly this marketing year. US cotton exports for MY 1997/98 are forecast at 500,000 bales, a 20 percent increase over MY 1996/97's 411,000 bales. As of February 26, outstanding sales were 285,168 bales while accumulated exports reached 252,200 bales, impressive increases of 38 percent and 73 percent, respectively.
(Jon Ann Flemings; 202-690-1546)