U.S. Cotton Outlook
The 1998/99 U.S. outlook this month includes no change in production or domestic mill use. An increase in imports of 50,000 bales to 450,000, offsets an increase in exports of 50,000 bales, resulting in unchanged stocks of 3.6 million bales.
The U.S. estimates for 1999/2000 feature lower production, consumption and ending stocks compared to last month. The production forecast was lowered 400,000 bales to 18.3 million, based on a crop production survey by NASS which indicated lower than expected yields in the Delta and California. Consumption was decreased by 100,000 bales to 10.5 million based on sluggish consumption in recent months, resulting in a stocks-to-use ratio of 35 percent.
World Cotton Outlook
The 1998/1999 world outlook this month includes modest decreases in consumption, production and exports, and a marginal increase in imports, resulting in ending stocks of 41.2 million bales.
The 1999/2000 world outlook this month features lower production and ending stocks compared to last month. Production was lowered by 1.3 million bales due to reductions in the United States, China, Uzbekistan and Argentina. World trade and consumption estimates were adjusted modestly, resulting in ending stocks of 42.3 million.
Cotlook A Index: The A Index is a principal 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 Franc Zone, Greek, Chinese, and Syrian. The 1998/99 Cotlook A-Index averaged 54.41 cents per pound during July, a 4.1-cent decrease from Junes 58.5 cents per pound average. On July 1st, the A-Index was 56.4 cents per pound and by July 30th it decreased to 53.5 cents per pound. The African quote was the lowest in the Index over the four week period, averaging 51.3 cents per pound, while the California/Arizona quote, the highest in the Index, averaged 61.95 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 settled higher on Thursday, August 5th with the October 99 cotton contract closing at 51.59 cents per pound, and the December 99 ending at 52.52 cents per pound. Low prices for Chinese cotton, combined with expectations of a large U.S. crop, continued to put downward pressure on U.S. prices. The market reacted positively to prospects of renewed Step 2 funding after the Senate passed a $7 billion farm aid on August 4, 1999.
U.S. Cotton Highlights
Cotton Consumption: The seasonally adjusted daily rate of U.S. cotton consumption in June amounted to 39,860 bales, (480-lb), compared with Mays level of 39,612 bales. A total of 1.01 million bales were consumed during five weeks in June, compared with 822,838 bales in May (4 weeks). The seasonally adjusted annualized consumption rate for the month of June was 10.36 million bales, up from Mays 10.30 million bales.
Domestic mills purchased a moderate amount of South Texas cotton nearby and a light volume of Delta and Southeastern growths for the first through fourth quarter 2000 delivery. Demand for fine count yarns remain good while demand for coarse count yarn was light to moderate. Consumer sales of housewares and teen apparel were very good; sales of denim were moderate; sales of domestic denim fabrics and print were very light. Most mills operated on a five-day workweek.
Cotton stocks: U.S. cotton stocks on hand in consuming establishments at the end of June totaled 557,244 bales (480-lb), down from 602,906 bales in May. Stocks held in public storage and at compresses in June totaled 4.01 million bales, down from 4.98 million in May. Active spindles in place in June totaled 5.16 million, of which 2.51 million were dedicated to 100-percent cotton, compared with 5.45 million and 2.65 million, respectively, during the same period in 1998. Cotton's share on the cotton spindle system was 79 percent in June.
Cotton Imports: U.S. cotton imports in May totaled 77,200 bales, down 35 percent from last month when 119,500 bales were imported, and up from May 1998 when 10,100 bales were imported. The leading supplier of U.S. cotton imports in May was Greece, with modest amounts from Argentina, Syria, Mexico, Mali and Uzbekistan.
Cotton Exports: For May 1999, U.S. cotton exports totaled 256,000 480-lb bales, up 52 percent from the previous months exports of 169,000 bales, but 46 percent lower than May 1998 exports of 477,000 bales. The leading markets in May were Mexico, Hong Kong, Korea, and Taiwan.
World Cotton Highlights
Greece: USDAs Agricultural Attache for Greece recently reported that cotton production has been trending upward, encouraged by EU aid. EU subsidies to the Greek cotton industry during 1998/99 are estimated to reach over $740 million, compared to $613 million in 1997/98. Yields are not increasing in proportion to planted area as some of the new land coming into production is marginal. Total cotton exports exceeded 1 million bales in 1998/99 and are expected to reach 1.1 million in 1999/2000. Greece exported approximately 170,000 bales of cotton to the United States in the first 10 months of the 1998/99 marketing year, representing 60 percent of all cotton imports into the United States. Greeces most import export markets are Turkey and the EU. For the first six months of the 1998/99 marketing year, Greek cotton exports comprised 9 percent of Turkeys total imports, compared to 28 percent for the United States.
Uzbekistan: USDAs Agricultural Attache for Uzbekistan recently reported that unfavorable weather, combined with an increase in pest and disease problems in major growing areas will lead to a drop in production during 1998/99. Consequently, USDA estimates cotton production in Uzbekistan to drop to 5.0 million bales in 1999/2000.
USDA estimates domestic consumption for 1998/99 at 825,000 bales, with further increases likely over the next few years as several joint ventures with Korean and Turkish textile mills come on line. These mills are expected to produce yarn for the export market. Exports are forecast to make a gain of approximately 8 percent in 1999/2000, after a 17 percent decline between MY 1997/98 and 1998/99.
Tajikistan: USDAs Agricultural Attache for Tajikistan reports that cotton production for MY 1999/2000 is estimated at 550,000 bales, an increase of 20,000 bales from the previous year. The Tajik Ministry of Agriculture does not expect yields to improve due to a continuing shortage of inputs. Domestic consumption is forecast to remain stable at 105,000 bales through 1999/00. Traders expect Tajikistans MY 1999/00 cotton exports to increase slightly. Major destinations include European and Southeast Asian markets.
Sudan: USDAs estimate for Sudanese cotton exports for the 1998/99 marketing year has been revised upward to 250,000 bales. Major importers of Sudanese cotton include India, Italy, Germany, Thailand and Bangladesh. Sudan is not considered a large cotton producer as 1998/99 cotton production was only 253,000 bales. About 85 percent of the cotton grown in Sudan is irrigated, most of which is long-staple exported for foreign exchange. The 1998/99 marketing year was a very poor crop year with production down as harvested area dropped sharply from 1997/98's level.
China: A recent article from the magazine "China Business Weekly" states that China's textile exports are expected to get a boost from the recent increase of tax rebate rates. The Ministry of Finance and the State Administration of Taxation announced that as of July 1, the export rebate rates for raw textile materials and products were raised to 15 percent while those for garments and accessories increased from 13 percent to 17 percent. Higher rebate rates reduce exporters' costs and hence increase their competitiveness on the international market, according to Fan Min, a division chief of the State Textile Industry Bureau. Chinese textile exports, which grew at an average annual rate of 14 percent in the 1979-97 period, have been sliding for 13 consecutive months since May 1998. The latest Chinese customs statistics indicate that textile exports during the first half of this year plunged by 21.1 percent, or over $4 billion from a year ago, to $16.86 billion. Exports of garments and accessories, which make up around 70 percent of Chinese textile exports nose dived by 26.7 percent. The decreases are mainly the result of a slack international market and stronger competition from South East Asian countries, whose currencies have depreciated.
Pakistan: The textile industry is one of Pakistans most important industries. Textile exports are a major source of foreign exchange, accounting for about two-thirds of Pakistans estimated $7.5 billion in export earnings. USDAs Agricultural Attache in Islamabad reports that cotton consumption has stagnated over the past several years due to a weaker demand from both the domestic and export markets. Earnings have fallen sharply due to the Asian financial crisis as well as to difficulties related to the sanctions imposed following Pakistans nuclear tests. The increased popularity of blended fabrics among domestic consumers also has contributed to stagnant consumption.
Egypt: USDAs Agricultural Attaché in Cairo reports that cotton consumption by domestic mills will decline further in the 1999/2000 marketing year, due mainly to high prices of domestic cotton, increased use of man-made fiber, and competition from cheaper imported yarn. In order to be competitive in the world market, domestic weaving and knitting mills are forced to use imported yarns, and textile and garment exporters are obliged to import fabric from cheaper sources. Egypts exports of cotton yarn are also expected to decline due to low quality and the lack of price competitiveness. Although Egypt has export quotas for yarn and fabric to the EU and the United States, most of these quotas go unfilled.
United States: According to data from the Department of Commerce, imports of cotton textile and apparel products for the first five months of 1999 totaled 5.2 million square meters, an increase of 10.5 percent from the previous year. Mexico remains the largest source of cotton textile and apparel products, representing 11 percent of all imports. Imports from NAFTA partners Mexico and Canada increased by 29 percent in the first five months of 1999, whereas imports from the remaining top 3, including Pakistan, India and China, changed by -8, +12 and +3 percent, respectively. Cotton textile and apparel imports comprised 48 percent of the fiber content of textile and apparel imports over this period, compared to 47 percent for the previous year.