World & U. S. Situation
World cotton production for MY 1997/98 is forecast at 89.2 million bales, down 890,000 bales (480-lb) from last month's forecast, led by a decline of 500,000 bales in India and 200,000 bales in Argentina. U.S. cotton production for MY 1997/98 is forecast at 18.83 million bales, down 147,000 bales from last month's forecast.
World cotton production for MY 1996/97 is estimated at 89.2 million bales, down 68,000 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 88.2 million bales, down 420,000 bales from the previous month's projection, mainly due to the decreased consumption forecasts for India and China. 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, down 6,000 bales 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 26.4 million bales, up 20,000 bales from the previous month's projection. China's exports increase by 190,000 bales, and Pakistan's by 70,000. Among countries with declines are Australia, down 100,000, and Greece and Paraguay, down 50,000 bales each. U.S. cotton exports for MY 1997/98 are unchanged at 7.5 million bales.
World cotton exports for MY 1996/97 are estimated at 26.5 million bales, down 39,000 bales 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 37.5 million bales, down 429,000 bales from last month's projection, but 3.5 percent above the beginning level. The largest declines are in Argentina, China, and the United States, and the largest increases in Australia and Egypt.
U.S. cotton ending stocks for MY 1997/98 are forecast at 3.9 million bales, down 150,000 bales from last month's forecast.
World cotton ending stocks for MY 1996/97 are estimated at 36.3 million bales, down 61,000 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 68.43 cents/lb. during March, down from February's 68.86 cents/lb. The A-Index began the month at 67.85 cents/lb. and ended March 31 at 68.40 cents/lb. The African quote was the lowest in the Index, averaging 66.30 cents/lb. During March, the California/Arizona and Memphis Territory quotes were above the A-index by an average of 8.81 and 7.06 cents/lb., respectively. May '98 futures prices on the New York Cotton Exchange trended higher for most of March, but fell dramatically on the last day with the release of USDA's U.S. planting intentions report. The May contract began the month at 67.91 cents/lb. and closed March 31 at 67.23 cents/lb.
The seasonally adjusted daily rate of U.S. cotton consumption in February amounted to 43,660 bales (480-lb), below January's level of 44,108 bales. A total of 889,142 bales (480-lb) were consumed during four weeks in February, compared with 877,523 bales in January (4 weeks). The seasonally adjusted annualized consumption rate for the month of February was 11.40 million bales, down from January's 11.51 million bales. Domestic mill buying remained active, with moderate purchases for prompt through third quarter 1999 delivery. Consumer demand for cotton textile goods was excellent. Demand for fine count yarns was excellent, while interest in coarse count yarns was fair. Sales of housewares remained excellent. Interest in children's apparel, infant wear, and summer teen apparel was strong. Consumer interest in men's and women's apparel was good. Most mills operated on a five day work week.
Cotton stocks on hand in consuming establishments at the end of February totaled 683,229 bales (480-lb), up from 624,231 bales in January. Stocks held in public storage and at compresses totaled 9.82 million 480-lb bales, down from 11.36 million in January. Active spindles in place in February 1998 totaled 5.4 million, of which 2.6 million were dedicated to 100-percent cotton, compared with 5.8 million and 2.6 million, respectively, during the same period in 1997. Cotton's share on the cotton spindle system exceeded 78 percent.
U.S. cotton exports for January totaled 734,000 480-lb bales, below December's 774,000 bales but 68,000 bales above the January 1997 exports, according to the U.S. Bureau of the Census. The leading markets in January were China, Mexico, Turkey, Japan, Taiwan and Indonesia.
U.S. cotton imports for January totaled 6 bales (all from Mexico) compared with 16 bales in January 1997, according to the U.S. Bureau of the Census.
Cover Story: Central American Mill Use of U.S. Cotton Increases
Central American imports of U.S. raw cotton have increased by an average of 11 percent since 1992, and the pace of increase is quickening. From MY 1995/96 to MY 1996/97 imports increased by 14 percent, and the year after that, by 17 percent. Although cotton production has almost stopped in Central America, and imports are substituting for locally grown fiber, mill use of raw fiber is increasing as well. Due to a shift in production support policy by the government of Nicaragua, and an unusually dry growing season, Nicaraguan cotton has now all but disappeared from the market. Competing raw fiber is entering from Argentina and from Africa, but U.S. fiber has the advantage of the shortest delivery time and the most reliable information on its spinning characteristics. Guatemala, which used to be self sufficient in fiber production, and El Salvador are the most active importers of raw fiber in Central America. They are expected to import a combined 290,000 bales this year, of which the United States has approximately 95 percent market share. Guatemala and El Salvador have also proven to be logical choices for foreign investment in several facets of the textile and apparel industry.
For Central America the most important factor influencing investment in the textile and apparel sector has been the Caribbean Basin Initiative (CBI) and its Section 807 treatment of textiles. Paragraph 807 permits assembly factories, or maquilas, to pay U.S. import duties only on the value added of the final good and includes several major categories affecting U.S. cotton fabric, both for specific limits and Guaranteed Access Limits (GAL's). In Central America the GAL's have driven investment in Guatemala, Honduras, and El Salvador. Since 1992 the CBI countries most actively involved in Section 807 apparel exports are El Salvador, Honduras, Guatemala, the Dominican Republic, and Jamaica. Although CBI benefits generally exclude apparel and textiles, there are some textile categories for apparel with 100 percent or high cotton content. These quotas are facilitating the relocation of apparel finishing activity to the Western Hemisphere from Asia. The United States negotiates quotas yearly with the governments of the CBI countries. In the case of apparel imports, U.S. cotton fiber use is benefitting with this activity since the maquilas are importing U.S. cut and formed cotton fabric.
The Caribbean GAL's do not compare with Mexico's advantages through the North American Free Trade Agreement, NAFTA. NAFTA gives duty-free and quota-free treatment to U.S. formed and cut fabrics sewn in the Mexican maquilas. CBI GAL's by contrast benefit the CBI countries with reduced duties and preferential quotas. The CBI countries actively using the GAL's also include the Dominican Republic and Jamaica. However, the Dominican Republic and Jamaica differ from Central America because the latter's producing and cotton spinning history has a greater base. Supporting industry inputs, managerial skills and technical know-how span the extremes of cotton spinning to garment finishing in Central America.
The NAFTA Agreement benefitted Mexico with the most dramatic growth in the Western Hemisphere's textile and apparel sector, while Guatemala and El Salvador have also experienced dramatic growth in the maquila apparel business thanks to CBI. The apparel maquila sector has become an important employer and foreign income earner since 1992, particularly for El Salvador, Honduras, and Guatemala, and less so for Costa Rica and Nicaragua. For example, in 1996 the Salvadoran maquila sector surpassed coffee and all other export categories in export earnings. By 1997 El Salvador's maquila sector growth leveled off to an annual rate of 24 percent. The value added in the Salvadoran maquila sector in 1996 approached $213 million. The degree of activity in the maquila sector depends largely on investment. This investment has concentrated in El Salvador and Guatemala where low wages, favorable exchange rates, infrastructure support, a suitable labor pool, and linkages to other supporting sectors already exist.
Capital investment in the Central American maquilas has largely come from Korea and to a lesser extent from Taiwan and the United States. In Guatemala, for example, Korea is the source of 53 percent of the investment, while U.S. investment is 7 percent. Korean companies started operations in Central America when U.S. quotas on Korean apparel were restrictive to Korean goods but open to those from Central America. Orders for apparel have gone to Korean companies either directly or through Korean-based contracting agents based on previously established relationships with U.S. customers such as Wal-Mart, K-Mart, and Sara Lee. The likely shortage of hard currency arising from the Asian crisis will probably reduce Asian investment capital in Central American maquilas. At the same time, we might expect U.S. companies to start closing the gap by contracting directly with Central Americans.
|Central America Shares of U.S. Textile Import Categories: Harmonized Tariff Schedule Codes|
|HTS Category||Guatemala||El Salvador||Honduras||Costa Rica|
|HTS 340 Men's & Boys' Woven Shirts||18.84 M Square Meters; 20.8% Share||14.875 M Square Meters; 16% Share||19 .2 M Square Meters; 20.6% Share||7.845 M Square Meters; 8.3% Share|
|HTS 342 Skirts||.820 M Square Meters; 10.5% Share||1.2 M Square Meters; 14.2% Share||.943 M Square Meters; 11.2% Share||no 807 quota|
|HTS 348 Women's and Girls' Pants and Slacks||12.3 M Square Meters; 4.5 % Share||13.36 M Square Meters; 4.9% Share||29.11 M Square Meters: 10.95% Share||11.53 Square Meters; 4.5% Share|
|HTS 239 Baby Garments||17.12 M Square Meters; 7.28 % Share||no 807 quota||32.18 M Square Meters; 13.9 % Share||39.73 M Square Meters; 16.5 % Share|
Regarding CBI GAL quotas, selected quota categories for cotton apparel assembled in Central American maquilas are illustrated below. As of the end of March, 1998 all quotas for Honduras have expired. The chart lists Harmonized Tariff Schedule numbers, and million square meters of cloth imported into the United States after finishing. The percentage refers to U.S. market share for the year ending January 1, 1998.
The know-how of the garment industry evolves in a process which can be summarized as follows: maquilas; cut and sew; cut, sew, and transform; ready-to-use; ready-to-sell; collection; and finally, label. The Central American textile and apparel industry has achieved all but the last stage of these steps. To the extent that investment and export market access is limited, most activity will be concentrated in the maquila and cut and sew stages which have export channels defined by the GAL's under the Caribbean Basin Initiative.
There are growing numbers of Central American mills spinning U.S. cotton into yarn or knits for export or fully integrating from spinning to finished garment production. The integrated operations are working outside the GAL's, utilizing the regular import quotas, and selling to the United States as well as to the Central American market. As Central American textile operations become more integrated, reduce turnaround time on orders, and accomplish more demanding prints and fabric finishes, they will attract export orders. As they gain this expertise, we can also expect to see increasing use of U.S. raw cotton fiber. Cotton products currently represent about two-thirds of all textiles and apparel exported to the United States from El Salvador, for example. A transformation of the textile sector is underway, and growing use of U.S. cotton is evident in this evolution. The use of U.S. cotton is occurring both within and outside the special access programs such as CBI section 807. (Ann Murphy)
Rains Dampen Argentina's Crop Prospects
Industry estimates for Argentina's harvest are ranging from 1.7 million bales to 1.9 million. The official USDA production estimate this month was lowered by 200,000 bales from 2.1 million to 1.9 million because of concern about the various effects of excessive rains. Normally harvest occurs beginning in late February with the majority of harvest occurring from March through June. This year, the effect of the rains so far has been to delay harvest, soak open bolls, and flood some fields in southern Chaco and northern Santa Fe. A critical time for watching weather in Argentina will be the next 30 to 40 days. As a result of the lowering of the production number, the USDA estimate for ending stocks has been reduced. (Ann Murphy)
Australia "Down Under" With Cotton Shipments at Risk
With cotton production expected to reach a record high of 2.9 million bales, Australia is facing critical problems exporting cotton to markets in Indonesia and Asia, where cotton imports have declined significantly this year. Traders fear that China, the world's largest cotton importer for the past 4 years, could cancel existing Australian cotton commitments for import purchases, as well as offer increased competition in the export market. China has booked several hundred thousand bales of Australian cotton, some at 15 cents/lb. greater than current world market prices. The Australian government has approved $250 million to finance cotton exports targeted to Indonesia, its main market. Australia's Industry Minister indicated that the country's trade insurance body would work with Indonesia to include cotton contracts under an Indonesian sovereign guarantee agreement reached March 13; however, Indonesian banks have been reluctant to open letters of credit with Indonesian cotton importers because even healthy businesses may have trouble repaying in U.S. dollars. Lastly, there is the Australian waterfront dispute, which threatens to severely disrupt cotton exports just as the shipping season approaches its peak period. As a result of these potential problems, USDA reduced Australia's export estimate by 100,000 bales to 2.4 million. (Andrew Levin)