World and U.S. Cotton Situation and Outlook
1998/99 World Cotton Consumption Forecast Up 1.6 Percent
USDA's initial world supply, use and trade projections for MY 1998/99 indicate lower production, higher consumption, and lower stocks. World production for the coming season is forecast at 86.5 million bales, down 2.4 percent from the current season's estimate. Declines in the world price over the last few months have tempered farmer's enthusiasm for cotton in many countries, including the United States.
World consumption is projected at 90.0 million bales, up 1.6 percent from this year's 88.6 million. Despite recent economic troubles in parts of Asia, the global average income will continue to rise, and with it, consumption of cotton. Imports, at 26.5 million bales, are slightly below 1997/98, while exports are projected about even at 26.2 million. These initial projections would result in MY 1998/99 ending stocks of 33.5 million bales, 9.5 percent below the carryover estimate for the current season.
1997/98 World Production Forecast Revised Down, Consumption Up
The estimate of world production in 1997/98 of 88.6 million bales is down 482,000 bales (480-lb) from last month's forecast, led by a decline of 500,000 bales in Argentina where the crop is experiencing flooding, and 100,000 bales in neighboring areas of Brazil. World consumption in 1997/98, forecast at 88.55 million bales, is up 350,000 bales from last month's projection, mainly due to the increased consumption forecasts for Pakistan (200,000) and Thailand (100,000). World cotton exports for 1997/98 are forecast at 26.1 million bales, down 235,000 bales from the previous month's projection, mostly due to a 350,000-bale reduction in expected Argentine exports due to bad weather. World cotton ending stocks are forecast at 36.9 million bales, down 597,000 bales from last month's projection, but still 1.9 percent above last year. Ending stock forecasts have dropped since last month for China, Argentina, Australia, Mexico, Korea, Brazil, and the United States.
1998/99 U.S. Cotton Outlook
The U.S. outlook for 1998/99 is for significantly lower production, continued strong demand and lower stocks. The 1998/99 crop is projected to decrease 11 percent to 16.7 million bales based on planting intentions of 13.2 million acres, an abandonment rate of 7 percent (the 10-year average), and a yield of 650 lbs per acre (equal to the 5-year average). U.S. exports are projected to decrease by 20 percent to 6.0 million bales. These projections would result in US ending stocks of 3.0 million bales, 21 percent lower than last year.
1997/98 U.S. Cotton Situation Largely Unchanged
U.S. cotton production for MY 1997/98 is forecast at 18.79 million bales, down 37,000 bales from last month's forecast due to an adjustment by the National Agricultural Statistics Service. Unchanged forecasts of U.S. cotton consumption of 11.50 million bales, exports of 7.5 million bales, and imports of 5,000 bales result in projected ending stocks of 3.8 million bales.
The 1997/98 Cotlook A-Index averaged 65.48 cents/lb. during April, down 3 cents from March's 68.43 cents/lb. The A-Index began the month at 67.60 cents/lb. and ended April 30 at 64.40 cents/lb. The Central Asian quote was the lowest in the Index, averaging 62.15 cents/lb. During April, the California/Arizona and Memphis Territory quotes were above the A-index by an average of 3.24 and 6.77 cents/lb., respectively. July '98 futures prices on the New York Cotton Exchange began the month at 68.87 and fell to 65.04 on April 30, as news of China's sale of over 1 million bales depressed the market. The December futures also fell about 3 cents during the month to close at 69.11 on April 30.
The seasonally adjusted daily rate of U.S. cotton consumption in March amounted to 43,683 bales (480-lb), below February's level of 43,766 bales. A total of 1,116,577 bales were consumed during five weeks in March, compared with 892,890 bales in February (4 weeks). The seasonally adjusted annualized consumption rate for the month of March was 11.40 million bales, down from February's 11.42 million bales. Domestic mill buying was active, with moderate purchases for October 1998 through October 1999 delivery. Consumer demand for cotton textile goods remained excellent. Demand for fine count yarns was excellent, while interest in coarse count yarns was fair. Sales of housewares remained excellent. Sales of children's apparel, infant wear, and summer teen apparel remained strong. Consumer interest in denim products continued to increase. Most mills operated a five day work week.
Cotton stocks on hand in consuming establishments at the end of March totaled 696,275 bales (480-lb), up from 684,638 bales in February. Stocks held in public storage and at compresses totaled 8.19 million bales, down from 9.88 million in February. Active spindles in place in March 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 February totaled 777,000 480-lb bales, above January's 734,000 bales, and 39,000 bales above February 1997 exports, according to the U.S. Bureau of the Census. The leading markets in February were Korea, Mexico, Japan, China and Turkey.
U.S. cotton imports for February totaled 114 bales (all from India) compared with 3,043 bales in February 1997, according to the U.S. Bureau of the Census.
Bangladesh Textile Industry Robust
by Andy Levin
The textile industry in Bangladesh is thriving. Bangladesh has relatively good access to EU and other markets for textile products, has availability of an industrious and low-wage work force, and has supportive government policies designed to increase investment in the industry. According to the Bangladesh Textile Mills Association, the sector provides direct employment to 2.75 million people, including 1.25 million women, and is the source of direct and indirect employment for 10 million people. According to the Ministry of Textiles (1995), employment in the industry accounts for 45 percent of the total employment of the industrial sector, and contributes about 65 percent of the total export earnings of the country. The textile industry is seen as an engine for the economic development of Bangladesh, where per capita income of about $200 is among the lowest in the world.
The demand for ready-made garments from Bangladesh is strong. The United States alone imports $1.7 billion per year of garments from Bangladesh, an amount which could be higher but for quota limitations. The Government of Bangladesh has requested that quota access to the U.S. textile market be increased by 30 percent, after it acceded to U.S. demands for an end to child labor in textile factories. Bangladesh's other major market, the EU, has provided a Generalized System of Preferences (GSP) facility to Bangladesh knit wear industries on the condition that the yarn used in the garments is manufactured in Bangladesh. This trade access has resulted in considerable growth in export-oriented yarn manufacturing. With additional mills currently being financed, the Bangladesh Textile Mills Association (BTMA) expects the country to be self sufficient in yarn production by 1999. Yarn demand for domestic use is expected to increase from 186 million kg in 1997/98 to 207 million kg in 1999/2000, and for the export oriented garment industry from 398 million kg in 1997/98 to 434 million kg in 1999/2000. Total domestic fabric production currently meets only 32 percent of the country's total fabric requirement, and only 10 percent of the woven requirement for the export oriented garment industry. The government of Bangladesh has established a textile policy to attain self sufficiency in fabrics by the year 2005 by promoting linkages within the various components of the industry (spinning, weaving, knitting, dyeing, finishing and garment manufacture), providing loans to modernize the industry and liberalizing import restrictions on raw materials.
Local cotton production meets approximately 15 percent of domestic consumption. While the BTMA would like to see this increase to some 50 percent by the year 2005, it is very unlikely to occur due to the lack of suitable soil and growing conditions for cotton, and strong farmer preferences for rice. Annual population growth is forecast by the government at 1.8 percent, and GDP growth at 7 percent, which will increase cotton consumption for domestic needs.
The United States has significant potential to increase cotton exports to Bangladesh and increase market share as well. In 1996/97, U.S. cotton exports to Bangladesh were 124,000 bales, representing 23 percent of Bangladesh's cotton imports. To date, commitments of U.S. cotton in 1997/98 have reached 210,000 bales, which if shipped this marketing year, would result in a U.S. market share of over 30 percent. Bangladesh also imports cotton from Australia, Africa, the Commonwealth of Independent States, and Pakistan, often due to attractive prices.
Bangladesh is an important market for high-quality cotton, and is one of the top markets for U.S. exports of Pima (extra-long staple) cotton. In 1997/98 the United States is likely to export about 70,000 bales of Pima to Bangladesh, which would represent a market share of 90 percent. Bangladesh spinning mill managers laud U.S. cotton for its regular and reliable shipment, known quality, and low contamination. The United States is likely to be able to count on Bangladesh as a good cotton export market for many years to come.
The Egyptian government has decided not to set a minimum floor price farmers must be paid for cotton for the coming crop. This is in sharp contrast to the last few years, when the guaranteed floor price was far above international prices. The results of the previous policy included higher cotton production and large stockpiles of unused cotton. Under the new policy, acreage may drop with lower prices, and private trading companies are likely to reenter the market.
However, most of Egypt's seed cotton is still consumed by state ginning companies, and the sector which uses lint cotton is still dominated by public sector spinning, weaving and textile factories. Beginning in 1994, Egypt began to open the cotton sector to private involvement in trading, but has continued to intervene in the areas of price setting and limiting exports. Unable to pay the support prices and be competitive, many private firms have folded.
Egypt's cotton acreage, production and exports have dropped significantly from peaks reached in the 1960s. Acreage for 1998/99 is likely to be down significantly from the 374,000 hectares harvested this year, with production also likely to be down. Egypt produces a long staple cotton with a reputation for quality that is zealously guarded, and will likely maintain many export markets next year due to a surplus of beginning stocks. (Ron Lord)
China has sold and is expected to export approximately 1.0 million bales of cotton between May and December 1998, originating from a 1.4 million bale export tender announced in mid-April. The grades specified on the original tender were 30 percent 229, 30 percent 329, and 40 percent "sellers option". Grade 229 is equivalent to U.S. strict middling (21), and grade 329 is equivalent to U.S. middling (31). According to a Chinese official, a majority of the cotton was procured in 1993, casting doubt on the quality of the cotton. Members of the cotton industry are anxiously awaiting test results describing how the cotton performs in the spinning process.
The cotton is reportedly being offered at cif prices ranging between 62 and 64.5 cents/lb. The majority of the cotton is in Chinese bales, significantly smaller than most bales traded on the international cotton market. According to reports, buyers are not responding well to these offers, resulting in slow sales. Although rumors have mentioned sales to Brazil, Indonesia, and Taiwan, the final destination of all the cotton is not certain. However, the cotton has been offered to mills worldwide. Hong Kong mills have purchased an estimated 25,000 bales. Recent reports of Hong Kong's receipt of an initial shipment highlight color deviations from the original sample.
Since 1993/94, China's cotton exports have been far below the USDA current estimate for this year of 200,000 bales, and China has been the world's largest cotton importer, despite China's rank as the largest cotton producer. It is unlikely that China will release additional export tenders in the immediate future, largely due to current low world prices. (Jon Ann Flemings)
Argentine cotton production was lowered for the second consecutive month due to flooding and rain damage affecting yields. This month's estimate puts the harvest at 1.4 million bales, which is down sharply from the March 1998 estimate of 2.1 million bales. The losses disappoint Argentine cotton farmers for the second season running. The harvest in 1996/97 was down about 23 percent from the 1995/96 harvest. The flood damage will impact Argentina's cotton exports especially to Mercosur partner Brazil and other Latin American importers who normally buy seventy percent of Argentina's exports. Argentina is expected to import 60,000 bales of high quality cotton to supplement lower quality domestic cotton. (Ann Murphy)