U.S. Cotton Outlook
The 1998/99 U.S. outlook this month features slightly higher production, higher imports, higher domestic consumption, lower exports, and higher stock levels compared to last months forecast. The 1998/99 cotton production estimate was raised 8,000 bales to reflect updated data and now stands at 13.92 million bales. Domestic mill use was raised to 10.5 million bales, exports were reduced to 4.1 million bales, and imports were increased to 400,000 bales. With the higher production and imports, stocks are now forecast to end the year higher at 3.6 million bales.
For 1999/2000, lower prices for alternative crops and updated information on expected planting levels put U.S. cotton production at about 18 million bales. Imports are projected to decline noticeably after the start of the new year and are forecast to reach about 50,000 bales. Domestic mill use is expected to rise marginally to about 10.6 million bales as an expected growth in end-use consumption is nearly offset by rising textile imports. Exports are projected to rise to about 5.5 million bales, although lackluster world demand, large foreign stock levels, and limited imports by China will keep exports in-check. Ending stocks next year are expected to increase to about 5.5 million bales, the highest level since 1988/89.
World Cotton Outlook
The 1998/99 world outlook this month includes marginally lower production, and lower ending stocks. The production estimate was lowered for Argentina, Pakistan and Australia. World consumption was increased by 65,000 bales due mainly to changes in the forecast for Indonesia and the United States offset by a reduction for Pakistan. World exports were reduced marginally to 23.7 million bales with reductions in Argentina and Australia more than offsetting an increase in Mexico. World ending stocks were lowered by 684,000 bales this month and now total 41.23 million bales due mainly to lower production estimates in Argentina, Australia and Pakistan.
For 1999/2000, world production is forecast to reach about 87 million bales due mainly to an expected increase in the size of the U.S. crop. World consumption for next year is forecast to rise to about 86.5 million bales on improved economic conditions, especially in Asia and Brazil. Ending stock levels for next year are forecast to increase by about 500,000 bales due to increases in the United States and in other countries outside of China.
A Index: The A Index is a principle measure of international cotton prices and represents an average of the five lowest quotes of cotton for delivery to Northern European ports. Quotes currently included in the A-Index are Uzbekistan, African, Greek, Syrian, and Mexican. The 1998/99 Cotlook A-Index averaged 57.88 cents per pound during April, a 1.15-cent increase from Marchs 56.73 cents per pound average. On April 1st, the A-Index was 56.06 cents per pound and by April 29th it increased to 58.74 cents per pound. The Uzbekistan quote was the lowest in the Index over the five week period, averaging 55.00 cents per pound for the month, while the Mexican quote, the highest in the Index, averaged 62.90 cents per pound.
Futures Prices: U.S. cotton futures prices represent the current price of U.S. cotton for delivery at a future date. U.S. cotton futures prices closed sharply lower on Wednesday, May 12th with the July 99 cotton contract closing at 57.30 cents per pound, and the December 99 ending at 58.01 cents per pound. The market reacted strongly Wednesday to the release of USDAs 1999/2000 cotton estimates showing substantially higher U.S. production next year. Prices in recent weeks have been bearish due to sluggish export sales and to reports of good planting progress in the U.S. and around the world.
U.S. Cotton Highlights
Cotton Consumption: The seasonally adjusted daily rate of U.S. cotton consumption in March amounted to 39,746 bales (480-lb), compared with Februarys level of 40,234 bales. A total of 1.014 million bales were consumed during five weeks in March, compared with 824,208 bales in February (4 weeks). The seasonally adjusted annualized consumption rate for the month of March was 10.33 million bales, down from Februarys rate of 10.46 million bales. Domestic mill buying in March for nearby delivery was light while buying for fourth quarter 1999 delivery through third quarter 2000 was moderate. Consumer sales of housewares such as towels and sheeting was very good, while sales of teen apparel, infant wear and womens casuals were good to moderate. Most mills operated on a four to five-day work week.
Cotton Stocks: U.S. cotton stocks on hand in consuming establishments at the end of March totaled 571,017 bales (480-lb), down from 604,700 bales in February. Stocks held in public storage and at compresses in March totaled 6.75 million bales, down from 7.77 million in February. Active spindles in place in March totaled 4.82 million, of which 2.54 million were dedicated to 100-percent cotton, compared with 4.87 million and 2.6 million, respectively, in February 1999. Cotton's share on the cotton spindle system was nearly 80 percent in March.
Cotton Exports: For February 1999, U.S. cotton exports totaled 182,000 480-lb bales, up 17 percent from the previous months exports of 156,000 bales, but 77 percent lower than February 1998 exports of 777,000 bales. The leading markets in January were Mexico, Japan, the European Union, Indonesia, South Korea, and Canada.
Cotton Imports: U.S. cotton imports in February totaled 12,180 bales, up from last month when 5,063 bales were imported, and up from February 1998 when 114 bales were imported. The leading suppliers of U.S. cotton imports in February were Greece, Mexico, and Spain.
World Cotton Highlights
Argentina: The cotton production estimate for 1998/99 was reduced by 300,000 bales this month to 1.1 million bales. The reasons for the decline include lower area sown and yield loss due to cool, wet weather in the major cotton producing areas of Chaco, Santiago del Estero and Formosa provinces. According to the attaché reports from Buenos Aires, prolonged wet and overcast conditions during most of April affected cultural practices and plantings.
China: Considered to have the best quality cotton in China, the Xinjiang region is also Chinas largest cotton producer. Reports from Beijing indicate that in 1998, cotton production in Xinjiang should reach 7.35 million bales, and account for about 36 percent of Chinas total cotton production of 20.20 million bales. Although the Chinese government continues to promote lower production levels overall, particularly in the poorer yielding areas, production in Xinjiang has remained relatively stable and is being protected. The Governments favorable policies towards cotton produced in Xinjiang can be attributed to its higher quality when compared to cotton grown in other regions, and the economic importance of cotton to the region. Cotton along with petroleum accounts for nearly 50 percent of Xinjiangs revenue.
The Governments favorable cotton policies towards Xinjiang cotton include a variety of marketing supports. An export subsidy is paid to exporters and domestic manufacturers who use 1998-crop Xinjiang cotton and is equal to about 18 percent of the procurement price. A rebate of the value-added tax (VAT) is another policy designed as an incentive to use Xinjiang cotton. Users of Xinjiang cotton receive a rebate of the Governments 17 percent value-added tax (VAT) which effectively reduces the VAT assessed to about 4 percent. In addition, the Ministry of Foreign Trade and Economic Cooperation (MOFTEC) has authorized the regional government and state-owned military farms to export Xinjiang cotton directly. With military farms accounting for a major source of cotton production in Xinjiang, this has made Xinjiang cotton even more attractive on international markets.
U.S. Textile Trade Highlights
Exports: U.S. cotton textile exports reached 4.08 million bale equivalents in 1998, an increase of 9 percent from the previous year. North America comprised 85 percent of cotton textile export destinations, and increased by 1.5 million bales since 1995.
Imports: U.S. cotton textile imports reached 12.49 million bale equivalents in 1998, an increase of 18 percent from the previous year. Asia and North America comprised 48 and 40 percent, respectively, of cotton textile import origins. The value of cotton textile imports was $30.7 billion in 1998.
Cotton fiber's share of textile imports in 1998 (by value) was 51 percent, an increase of 2 percent from the previous year. By comparison, man-made fiber's share in 1998 was 38 percent, a decrease of 1 percent from the previous year.
U.S. Cotton Textile Trade
(in million bale equivalents)