U.S. Cotton Outlook

The 1998/99 U.S. outlook this month includes no change in production. Exports were increased by 100,000 bales and domestic consumption decreased by 50,000 bales. Based on a preliminary Census Bureau survey, ending stocks were increased 300,000 bales to 3.9 million.

The 1999/2000 U.S. forecast features lower production, consumption and ending stocks compared to last month. The production forecast was lowered 769,000 bales to 17.5 million, based on a crop production survey by NASS which indicated lower than expected yields in all areas except the Far West. Consumption was decreased by 100,000 bales to 10.4 million based on sluggish consumption in recent months, resulting in a stocks-to-use ratio of 33.5 percent.

World Cotton Outlook

The 1998/1999 world outlook this month includes modest decreases in consumption and imports, and marginal increases in exports and production. Ending stocks increased over 400,000 bales, largely due to the increase in U.S. stocks. Loss was increased by 350,000 bales due to an adjustment of U.S. stocks, exports and consumption based on recent U.S. Census Bureau data.

The 1999/2000 world outlook this month features lower production and ending stocks compared to last month. Production was lowered by 1.6 million bales due to reductions in the United States, India and Uzbekistan. World trade and consumption estimates were adjusted modestly. Ending stocks decreased by nearly 1,250,000 bales resulting in a world stocks-to-consumption ratio of 47.1 percent.

Cotton Prices

Cotlook A Index: The A-Index, a principal measure of international cotton prices, represents an average of the five lowest quotes of cotton for delivery to Northern Europe ports. During the past August, quotes of Uzbekistan, African ‘Franc Zone’, Greek, Spanish, and Syrian cotton were included in the Index. The Index averaged 50.98 cents per pound during the period, a 3.43-cent decrease from July’s 54.41 cents per pound average. The Greek quote was the lowest in the Index over the four week period, averaging 50.83 cents per pound. On September 2, the A-Index dropped below 50 cents per pound, reflecting uncertainties about market liberalization in China, and expectations that China will continue to export.

Futures Prices: U.S. cotton futures prices represent the current price of U.S. cotton for delivery at a future date. During August 1999, U.S. cotton futures prices drifted lower due partly to weak international prices, and uncertainty about impact of trade policies in China. On Thursday, September 3, the October and December 99 cotton contracts settled at 50.23 and 51.64 cents per pound, respectively.

U.S. Cotton Highlights

Cotton Consumption: The seasonally adjusted daily rate of U.S. cotton consumption in July amounted to 38,758 bales, (480-lb), compared with June’s level of 39,787 bales. A total of 703,260 bales were consumed during the 4 weeks in July, compared with 1.01 million bales in June (5 weeks). The seasonally adjusted annualized consumption rate for the month of July was 10.08 million bales, down from June’s 10.35 million bales.

Domestic mills purchased a light amount of cotton for nearby through fourth quarter of 2000 delivery. Demand for fine count yarns was good but light for coarse count yarns. Consumer sales of housewares and teen apparel were good; sales of denim were moderate; sales of domestic denim fabrics and print cloth 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 July totaled 588,523 bales (480-lb), up from 562,244 bales in June. Stocks held in public storage and at compresses in July totaled 3.33 million bales, down from 4.08 million in June. Active spindles in July totaled 4.68 million, of which 2.50 million were dedicated to 100-percent cotton, compared with 5.06 million and 2.59 million, respectively, during the same period in 1998. Cotton's share on the cotton spindle system was 78.2 percent in July.

Cotton Imports: U.S. cotton imports in June totaled 81,445 bales, up 5.4 percent from last month when 77,200 bales were imported, and down from June 1998 when 106,000 bales were imported. The leading supplier of U.S. cotton imports in June was Greece, with modest amounts from Benin, Syria and China.

Cotton Exports: For June 1999, U.S. cotton exports totaled 264,000 480-lb bales, up 2 percent from the previous month’s exports of 256,000 bales, but 219 percent lower than May 1998 exports of 574,000 bales. The leading markets in June were Mexico, Turkey, Korea, Japan Taiwan, Canada and Indonesia.

World Cotton Highlights

India: USDA reduced the 1999/2000 production forecast by 550,000 bales to 12.1 million bales, a decline of nearly 6 percent from the previous year’s estimate as unusually dry conditions reduced plantings of late season varieties in several southern regions and in Gujarat in the central region. In addition, there was a larger than expected shift out of cotton in the northern region. Based on monthly mill data, 1998/99 estimated consumption was raised 300,000 bales to 12.5 million; this trend is expected to continue in 1999/2000 with domestic consumption increasing to 12.75 million bales. For more detailed information on India’s cotton production and trade, please see Market Report #IN9057, available through the FAS homepage.

Uzbekistan: USDA reduced the 1999/2000 production forecast by 200,000 bales to 4.8 million due to weather and locust problems; forecast exports were reduced to 4.0 million bales. For more detailed information on Uzbekistan’s cotton production and trade, please see Market Report #UZ9007, available through the FAS homepage.

Mali: Production in the Francophone’s largest cotton producer is expected to continue to increase annually due to area expansion, remunerative producer prices offered by the state cotton company, improved seed varieties, and availability of production credit. For more detailed information on Mali’s cotton production and trade, please see Market Report #ML9001, available through the FAS homepage.

Pakistan: USDA increased the 1999/2000 production forecast by 200,000 bales to 7.2 million, an increase of 14 percent from the previous year’s estimate due to good growing weather and the lack of pest problems to date. The forecast for 1999/2000 exports was doubled to 200,000, due to the elimination of cotton export quotas by the Government of Pakistan, as well as greater exportable supplies. For more detailed information on Pakistan’s cotton production and trade, please see Market Report #PK9021 available through the FAS homepage.

U.S. and Australia Cotton Export Trends to Southeast Asia

Pauline Simmons and Andrew Levin

Over the past 6 years, U.S. market share in Southeast Asia has been characterized by an erratic and declining trend, from a high of 37 percent in 1994/95 when the U.S. exported 1.6 million bales to the region, to a low of 8 percent in 1998/99 when only 355,000 bales were exported.

USDA estimates that the region will import 4.5 million bales in 1999/2000, the same level as in 1993/94. Thailand’s declining imports of 300,000 bales over this period have been compensated by a corresponding increase in Indonesia. Indonesia is forecast to import 2.35 million bales in 1999/2000, making it the world’s largest cotton importer.

While U.S. market share and exports to Southeast Asia reached a low in 1998/99 due in part to lower exportable supplies, Australia’s market share reached 32 percent, reflecting an average annual increase of 4 percent over the past 5 years. Indonesia imported nearly 900,000 bales of Australian cotton in 1998/99, representing nearly one-third of Australia’s cotton exports.

Reports from FAS agricultural officers attribute Australia’s success in this market to a number of factors, including geographic advantage and competitive prices.

Although the GSM-102 program has added financed U.S. cotton exports to Indonesia in recent years, there has been only $12.6 million in registrations to date in FY99 (October 1, 1998 - September 3, 1999), approximately 21 percent of U.S. cotton exports. This compares to $36 million in registrations in FY98, which represented 22 percent of U.S. cotton exports. U.S. cotton commitments (sales plus exports) for the 1999/2000 marketing year have reached 395,000 bales, exceeding last year’s total exports.

SPECIAL FEATURE:STATUS OF PROGRESS ON CHINA COTTON REFORMS

Carol Skelly, USDA,World Agriculture Outlook Board

The following information was gleaned from the papers presented and informal discussions held with China government representatives at the recent China International Cotton Conference held in Xi’an, China, September 1-3, 1999.

While no minimum cotton procurement price has been set, the government may intervene in the new floating price regime if farmers are otherwise forced to sell cotton at too great a loss. Such intervention would probably take the form of government purchase from farmers at a minimum price.

Analysis of current world and domestic market conditions suggests that cotton could be purchased from farmers in the range of 7,000-8,000 RMB/metric ton, or about 38-44 cents per pound. This price would cover the national average variable cost of inputs plus about 75-80 percent of the labor costs, which the government considers to be a fair price. The implication was that the government would consider intervention to support prices in the lower end of this range.

The floating price reform affects only the 1999 crop; there is no policy in place that would provide subsidies to compensate for the sale of old-crop cotton at prices below the original procurement price. Such subsidies, if approved later by the State Council, would probably take the form of reimbursement for losses to the agricultural credit banks. If subsidies are offered at some national average loss level deemed acceptable by the central government, then cotton with below-average loss levels is most likely to be sold from stocks. Such a policy would favor cotton from Xinjiang province, where cotton stocks are believed to be most excessive and where procurement prices have been below the national average.

Special subsidies might also be forthcoming for Xinjiang due to social problems there. The aggregate losses of all the cotton cooperatives are quite large and, therefore, the Bureau of Cotton and Jute managers say they expect that cotton will be sold from stocks over a long period of time, so as to allow the government to absorb the losses at a slower rate. Bureau of Cotton and Jute officials expect that 1999/2000 exports will range from 200,000-300,000 metric tons.

The China National Cotton Exchange in Beijing is expected to begin operating sometime within the next two months. This exchange is essentially a spot cotton exchange by electronic network run by the central government. The exchange has about 75 approved participants, including provincial cotton and jute companies, State-owned mills, and Chinatex, the China National Textiles and Import and Export Corporation.

Buyers and sellers will initiate transactions via the network, making deposits to guarantee performance. The government may use the exchange to support prices by purchasing cotton or to trade the state cotton stock. Chinatex could also buy cotton from the exchange for export. As of now, the exchange plans to provide price information to members, but not to the general public.

Last modified: Sunday, March 17, 2013