U.S. Cotton Outlook

The 1998/99 U.S. outlook this month is unchanged from last month’s estimate.

The 1999/2000 U.S. forecast features higher exports and production, unchanged consumption and lower ending stocks compared to last month. Forecast production increased 78,000 bales based, on slightly higher yields. While consumption was unchanged, the export forecast rose 200,000 bales to 6.4 million, reflecting continued higher sales in recent weeks. Ending stocks were reduced 100,000 bales, to 4.4 million, resulting in a stocks-to-use ratio of 26.5 percent.

World Cotton Outlook

The 1998/1999 world outlook this month includes slight increases in consumption, trade and ending stocks. Ending stocks are forecast up 82,000 bales resulting in a world stocks-to-consumption ratio of 48.9 percent.

The 1999/2000 world forecast features decreases in production and ending stocks, and slight increases in consumption and trade. The decrease in production was the result of a 1.4-million- bale decrease in China, which was only partially offset by increases in Pakistan, the United States, Togo, and Turkey. Consumption was increased in Turkey. Imports for Turkey were also increased, along with increased imports for India and Thailand. Ending stocks decreased 1.28 million bales, resulting in a world stocks-to-consumption ratio of 45.2 percent.

Cotton Prices

Cotlook A Index: The A-Index, a principal measure of international cotton prices, is the average of the five lowest quotes of cotton for delivery to Northern Europe ports. During December, quotes for Pakistani, Syrian, Uzbekistan, Greek, and African "Franc Zone" cotton were included in the Index. The Index averaged 44.21 cents per pound during the period, a 1.92-cent decrease from November’s 46.13 cents per pound average. The Pakistani quote was the lowest in the Index over the four week period, averaging 43.46 cents per pound. On January 6, 2000, the A-Index increased by 0.35 to 44.35 cents per pound from December 30, 1999, based on the expectation that China would have a lower production this season.

Futures Prices: U.S. cotton futures prices are the current price of U.S. cotton for delivery at a future date. Despite some expectations that the implementation of Step 2 would support the futures market, futures prices drifted lower in December. On Thursday, January 6, the March 2000 contract settled at 52.08 cents per pound, and the May 2000 contract settled at 53.36 cents per pound. Recent increases of futures prices reflect the expectation of a lower production estimate in China and an upward trend of the A-Index.

U.S. Cotton Highlights

Cotton Consumption: The seasonally adjusted daily rate of U.S. cotton consumption in November amounted to 38,827 480-lb. bales, compared with October’s level of 39,137 bales. A total of 784,800 bales were consumed during four weeks in November, compared with 821,113 bales in October (4 weeks). The seasonally adjusted annualized consumption rate for the month of November was 10.13 million bales, down from October’s 10.21 million bales.

Domestic mills purchased a light to moderate amount of cotton for nearby through fourth quarter 2000 delivery. Demand was good for color 41 and better, leaf 4 and better, staple 34 and longer, and mike 35-49. Some mills continued to bring in San Joaquin Valley and Texas growth cotton to replace shorter staple cotton from Delta and Southeastern growth. Some mills have begun inquiring about contracting 2000-crop cotton. Demand for fine count yarns was good; demand was light to moderate for coarse count yarns. Consumer sales of housewares were good; men’s knitted outerwear, infant wear, women’s casual apparel, teen apparel and hosiery were moderate; and denim were light. Mill sales of specialty yarn were moderate; sales of yarn, upholstery, and industrial fabrics were good; gray cloth was light; and domestic denim fabrics and print cloth were very light. Most mills operated on a five to six-day work week. A few mills shut down for the Christmas holiday and scheduled maintenance.

Cotton Stocks: U.S. cotton stocks on hand in consuming establishments at the end of November totaled 508,517 bales (480-lb), down from 529,721 in October. Stocks held in public storage and compresses in November totaled 11.34 million bales, up from 7.93 million bales in October. Active spindles in November totaled 4.54 million, of which 2.4 million were dedicated to 100 percent cotton, compared with 5.04 for the same month last year, during which 2.7 million were dedicated to 100 percent cotton. Cotton’s share on the cotton spindle system was 78.6 percent in November 1999.

U.S. cotton exports in October 1999 totaled 167,000 480-lb bales, 21,000 bales above September's exports of 146,000 bales and 98,000 bales below October 1998 exports of 265,000 bales, according to the U.S. Bureau of the Census. The leading markets in October 1999 were Mexico, Indonesia, Taiwan, Canada and Korea with modest exports to Thailand, Colombia, China, Japan and Bangladesh.

U.S. cotton imports in October totaled 3,800 480-lb bales, down 6,700 bales from September 1999 when 10,500 bales were imported, and 3,700 bales more than October 1998 imports of 100 bales. The leading suppliers in October were Mexico and Argentina with modest imports from Egypt and Turkey.

Step 2 Payment Status: The Step 2 upland cotton marketing certificate program was approved on October 22, 1999 as a part of FY2000 Agriculture Appropriations Bill, and was retroactively applied to sales made since October 1, 1999.

Step 2 payments rates are determined by a formula which measures the difference between the lowest U.S. quote for Memphis 1-3/32 inch cotton, c.i.f. northern Europe (USNE) and the average of the five lowest international quotes for Middling 1-3/32 inch cotton c.i.f. northern Europe (NE). USDA’s Farm Service Agency announces Step 2 payment rates each Thursday when U.S.-grown cotton is priced higher than cotton from the rest of the world by more than 1.25 cents per pound for 4 consecutive weeks. The payment rates are equal to the preceding week’s (Fri-Thu average) USNE minus the NE minus 1.25 cents per pound.

Due to the widening gap between U.S. and international cotton prices, Step 2 payment rates remain high. The following table shows payment rates since the reinstatement of the Step 2 program.

Source: USDA, Farm Service Agency

Note: 480-lbs statistical bale.

Totals may not add due to rounding.

Payments current as of January 7, 2000.

World Cotton Highlights

China Accession to the WTO Moves Forward Despite Lack of Agreement in Seattle

James Johnson

On November 15, 1990 the United States and China reached an agreement on the terms under which the United States would support China’s accession to the WTO. Several important steps remain. First, China must conclude similar bilateral negotiations with a number of other WTO members. Then, the WTO General Council must approve the terms of China’s accession to the WTO. After China demonstrates that it has brought its domestic policies into conformity with the terms of accession, China becomes a member of the WTO. There is no specific time frame for China’s accession. The United States and China have been negotiating for thirteen years, however it is possible that China could be a WTO member before the end of 2000.

The general terms of the U.S -China agriculture agreement are that:

China will cut its average agriculture tariff from 22 percent to 17.5 percent, and high- priority tariffs will be cut from an average of 31 percent to 14 percent;

China will establish large and increasing tariff-rate quotas for wheat, corn, rice and cotton with a substantial share reserved for private trade; and

in textiles, China agreed on appropriate measures to avoid market disruptions during and after the phase out of current quotas under the existing WTO Agreement on Textiles and Clothing.

The tariff rate for cotton will initially be 76 percent ad valorem, which will be reduced to 40 percent over 5 years. In addition, China will create a tariff rate quota (TRQ) for cotton of 743,000 tons, which will increase to 894,000 tons over 5 years, the in-quota duty rate will be 1 percent ad valorem. Two-thirds of the TRQ will be available to private traders; the other third will be reserved for state trading.

In addition, once a member of the WTO, China will be prohibited from using export subsidies for cotton, and from treating exports of yarn, textiles, and apparel made from imported cotton less favorably than if they are made from Chinese cotton. China’s subsidies for cotton producers will fall under the domestic support commitments of the Uruguay Round agreement.

MY 1998/99 Cotton Exports for Greece, Spain and Turkey

Pauline Simmons

Cotton exports from Greece in MY 1998/99 totaled 1.08 million 480-lb bales. Demand for Greek cotton exceeded initial estimates of 1.0 million bales, despite losses in some traditional Far Eastern markets due to cheaper cotton exports from countries like China. This gain could be attributed in part to the country’s major break into the U.S. market with a sale of 225,427 bales in MY 98/99.

Estimates by Turkey’s National Cotton Advisory Board and private sector sources place the country’s exports at 363,940 for MY 98/99 bales.

Spain exported 189,003 bales, but was a net importer of 41,000 bales in MY 98/99.

MY 1998/99 Cotton Import Data for France, Germany, Italy and Portugal

Yoonhee Macke

France, Germany, Italy and Portugal accounted for 77 percent of EU-15 imports in MY 1998/99. Nearly 40 percent of Portugal’s imports were supplied by Franc-zone African countries, compared with France, which purchased 58 percent of its imports from the Central Asian countries. Uzbekistan, the largest competitor of the United States, exported over 20 percent of its exports to these four countries.

Source: USDA Overseas Posts and National Customs data.

Francophone West Africa Cotton Update

Andrew Levin

Paper presented at the 2000 Beltwide Cotton Research Conference, San Antonio, Texas, January 7, 2000.

Abstract

Cotton production has been an engine of economic development in Francophone W. Africa for over 4 decades, where it is grown on 2.4 million hectares involving 10 million people. However, low world prices, stagnant yields and inefficient state cotton company operations have put the sector at a crossroads. Under pressure by the World Bank, increased competition in the cotton sector is being introduced, including the privatization of the state cotton companies in a number of countries. As a result, producer associations are becoming significant players. These developments may lead to many changes, including the way in which cotton is marketed.

Overview

Francophone Africa ranks 6th in cotton production in the world. Cotton production in the region in 1999/2000 is forecast at 901,000 t, about 2 percent higher than the previous year, and up 317,000 t or 54 percent from 1994/95. Francophone W. Africa’s exports for 1999/2000 are forecast at 807,000 t. About 90 percent of the region’s cotton crop is exported, which along with Australia, is the highest of any cotton producing region in the world. As a region, it is the world’s third largest exporter, but the gap between Francophone W. Africa and Uzbekistan, the world’s second largest exporter, has narrowed from 506,000 t five years ago, to 86,000 t in 1999/2000.

While Francophone W. Africa’s cotton crop represents 4.7 percent of world production, its exports represent 14 percent of world trade. Cotton production increases since the 1970s have been driven by both area expansion and yield increases. Over the past 30 years, area has tripled to 2.4 million hectares. Yields also increased dramatically, but reached a plateau in the mid 1980s, and have fallen in recent years. Francophone cotton fiber yields are forecast at 375 kg/ha in 1999/2000, which is 209 kg/ha below the world average, although there is a variation in yields among countries, with Chad’s yields one-half those of Cote d’Ivoire’s. Domestic cotton consumption in Francophone W. Africa is estimated at 60,000 t, representing 1.5 percent of world consumption. Despite dramatically increased supply, consumption has not risen in a decade.

Privatization

The World Bank has been pressuring Francophone W. Africa governments to reform their cotton sectors and introduce competition (World Bank, 1999). A June 1998 meeting in Dakar, Senegal followed a March meeting in Washington, D.C. in which cotton reforms were proposed to introduce greater competition in the industry and give farmers greater influence over pricing and other key decisions. A World Bank study indicated that Francophone farmers received 37 percent of the world price for cotton in 1994-97 compared to 79 percent in Zimbabwe and 93 percent in India (Palmer, 1999). This study concluded that in Cote d’Ivoire there was an implicit taxation of about 50 percent since the 1994 F CFA devaluation, and that a competitive seed cotton price would exceed actual prices by 94 percent (Pursell, 1998).

One of the arguments for privatizing state cotton companies is to remedy inefficiency, mismanagement and corruption. Mali's parastatal cotton company Compagnie Malienne pour le Developpement des Textiles (CMDT) dismissed three of its executives in June 1999 for "allowing excessive stocks of cotton to build up." Marketing of cotton was reportedly 3 months behind schedule, resulting in the loss of millions of CFA francs. Recent computerization of CMDT, which tracks company assets, revealed that the company had acquired far too large stocks of spare parts and farm inputs. The heads of three of CMDT's regional offices were also removed (Diallo, 1999). The head of the Koutiala office, Mali's largest cotton growing region, was removed recently for allegedly profiting from the sale of cottonseed meal on the black market.

Despite these problems, it is uncertain if and when CMDT will privatize. The delegate of Mali to the International Cotton Advisory Committee (ICAC, 1998) stated that his "government does not intend to privatize such a valuable tool of development as CMDT." The World Bank itself seems to have backed off in forcing a change in Mali, although Bank officials have pointed out that CMDT's recent problems are proof that the industry must be reformed.

A number of studies have highlighted the inefficiencies of Mali’s marketing system in which COPACO (Compagnie Cotonniere), an affiliate trading arm of the French parastatal Compagnie Francaise de Developpement du Textile (CFDT), handles the majority of Mali's cotton. Over the past 3 years, private traders who handled 2-8 percent of the crop received 15-23 percent higher prices than COPACO (Tefft, 1999). One of the new private cotton companies in Cote d'Ivoire forward sells 80-90 percent of the current crop by January/February when ginning is still underway, in order to hedge its price risk, a marketing practice that may become more prevalent in the region.

A number of changes in the industry have already occured as a result of privatization of Cote d'Ivoire's cotton industry, which began 2 years ago. Additional investment in ginning in Cote d'Ivoire is planned by several groups. Louis Dreyfus announced in August 1999 that it would build a 30,000 t cotton gin in Korhogo in partnership with the union of local cooperatives, URECOS-CI, with Continental Eagle supplying and installing the ginning equipment. Investment in the gin was reportedly 12.8 billion F CFA ($21 million) (t'Sas, 1999). URECOS-CI represents 90 percent of Cote d'Ivoire's 140,000 cotton growers, and plans to take on input supply and technical assistance functions provided in the past by the parastatal Compagnie Ivoirienne de Developpement des Textiles (CIDT). URECOS-CI officials plan to build a gin in order to understand cotton transformation costs and to thereby be in a better position to argue for a favorable producer price. This group recently agreed to a formula for determining the producer price based in part on a calculation of production and ginning costs. The producer price is agreed upon annually by a tripartite group including producer, gin and government representatives.

Under the terms of the privatization of Cote d’Ivoire’s cotton industry, which began in October 1997, CIDT will stop providing inputs for next year's (2000/2001) crop. URECOS-CI officials also believe that production increases are possible by increasing seed cotton yield from the current level of 1300 kg/ha to 1,800-2,000 kg/ha (an increase from 545 to 798 kg/ha cotton fiber). Industrial Promotion Services (IPS), a holding company owned by Aga Khan and including the Swiss trading company Paul Reinhart, which bid 24.5 billion CFA francs ($41.2 million) for 3 gins in the northwest, also plans to build a gin in Odienne, a region in which production has increased by an estimated 10 percent from the previous year due to increased area.

Producer Price

The price received by Francophone farmers varies among countries, although it is usually based on how clean the cotton is when it arrives at the gin. In Cote d’Ivoire, the price for first quality cotton for the current season has been set at 175 F CFA/kg ($0.27/kg) as a result of a meeting on December 30 by producers and ginners (Raybould, 2000). Ivorian cotton farmers had proposed a price of 180 F CFA/kg and are reportedly holding back delivery to gins until January 10 when they will meet and finalize their acceptance of the price (Reuters, 2000). Producers also expect some redistribution of profits from the previous year's crop. Producers were paid 200 F CFA/kg for first quality and 170 F CFA/kg for second quality cotton in 1998/99 and 1997/98, although an additional 5 F CFA/kg for both grades will be paid as an incentive for higher production.

In Burkina Faso, the first quality price is 160 F CFA/kg, with an additional payment of 25 F CFA/kg from redistributed profits from the previous year's crop. Second quality is paid 125 and third quality 105 F CFA/kg. While the determination of quality is based on how clean the fiber is when it arrives at the gin, it is subsequently graded into 12 types for sale. The producer price in Mali is 150 F CFA/kg, which includes a 5 F CFA/kg payment from profits from the previous year. This is a drop from 185 F CFA/kg the previous year.

According to Malian cotton farmers in Koutiala, the cost of inputs is 145 F CFA/kg, and to cover land and depreciation (no labor) is 215 F CFA/kg; farmers whose fields yield 1 t/ha are losing money and considering alternative crops. Over the range of cotton yields that are possible in this region, farmers value their labor at $600-$1,500 per family. A typical extended farm household may include 30 persons, one-quarter to one-half of whom are involved in farming. This household may farm 3.5 ha of cotton, 5 ha of sorghum/millet and 1.5 ha of corn.

Production Constraints

One of the benefits of the integrated management and technical assistance provided by the state cotton companies is that grain yields have risen in cotton growing regions (Bosc and Hanak Freud, 1995). In Mali, area planted to both cotton and cereal grains has increased since the 1994 devaluation. The yield benefit to cereals crops may be due to some residual fertilizer from preceding cotton crops, access to improved seeds, and the diversion of cotton inputs to the cereal crop. An argument has also been made that there is a technology spillover, including the use of animal traction purchased or made available through cotton credit.

Increased cotton production in Mali has resulted from area expansion as many farmers have reduced fallow periods and new lands have been cleared for production (Tefft, 1999). One study indicates that farmers reduced the traditional 5-7 year fallow period by continuous cropping on 50 percent of their holdings. The Kita region in Mali began production in January 1995 with 3,000 t of seed cotton and reached 46,000 t last year. As a result of more intensive cultivation, some farmers in Koutiala, Mali's largest cotton region, complain that yields have been declining due to depleted soil fertility. According to the Centre de Cooperation Internationale en Recherche Agronomique pour le Developpement (CIRAD), soil fertility is probably one factor, but the increasing labor constraint must also be taken into account. Some studies have estimated that cotton requires 170 person days per year per hectare compared to 60 for millet/sorghum and 90 for corn (Tefft, 1999).

Outlook

In the short term, there are a number of daunting challenges to the sustainability of cotton production in Francophone Africa. With several years of declining world prices, there is tangible pressure on farmers to re-evaluate their planting options, although in most cases the option for alternative cash crops are limited. Low world cotton prices are eroding cotton company profits and gains made since the 50-percent devaluation of the F CFA in 1994. The low prices have particularly hit the governments of Mali, Burkina Faso and Chad, which receive more than half of their foreign exchange earnings from cotton fiber exports. In these three countries, cotton farmers will receive 12-19 percent less for their cotton than the previous year, the first nominal price decline since the devaluation. Reduced revenues are putting pressure on governments to find ways to minimize inefficiency and introduce competition in the marketplace. Reduced cotton revenues for the poorest farmers in Mali and Burkina Faso and for the majority of cotton farmers in Chad will squeeze household earnings and potentially result in food insecurity (USAID, 1999).

With economic integration through the West Africa Economic and Monetary Union (UEMOA) and the Central African Economic and Monetary Community (CEMAC), free flow of goods across borders will be allowed in 2000. In the triangular region where the cotton producing regions of Mali, Burkina Faso and Cote d'Ivoire are located, cotton fiber could theoretically be sold across borders to the gins offering the most attractive price, however, with high transportation costs, this may not be realistic. The integration of the region could enlarge the internal market, including domestic textile manufacturing and trade, although currently the high cost of energy seems to be a disincentive to domestic textile manufacturing.

Cotton production in the region is expected to continue to grow, despite the lack of efficiency of some state cotton companies. Cotton production peaked in 1997/98 at 941,000 t but over the past 4 years, cotton production has increased at an average annual rate of 13.5 percent. In the short term, production is more likely to increase at an average annual rate of several percent. However, a major resurgence in production may occur as producer groups become knowledgeable about business costs, operations and marketing, and play a greater role in these decisions.

References

Bosc, P. M. and E. Hanak Freud. 1995. Agricultural innovation in the cotton zone of Francophone West and Central Africa. In Proceedings of IITA/FAO Workshop held from 19-23 September 1994 in Cotonou, Benin. pp 265-306.

International Cotton Advisory Committee. 1998. 57th Plenary Meeting of the International Cotton Advisory Committee. Santa Cruz, Bolivia. 1998.

Palmer, D. 1999. Africa could be cotton superpower. 10 September 1999. Reuters.

Pursell, G. 1998. Cotton Policies in Francophone Africa. May 1998. The World Bank. Washington, D.C.

Raybould, A. 2000. Post-coup cotton price row in Ivory Coast. 3 January 2000. Reuters.

Reuters. 2000. Ivorian cotton farmers still holding back delivery. 4 January 2000.

Tefft, J. 1999. Cotton in Mali: The "White Revolution" and Development. Chapter in forthcoming book Democracy and Development in Mali (draft). July 1999.

t'Sas, Vincent. 1999. Dreyfus plans cotton gin in Ivory Coast. 27 August 1999. Reuters.

USAID. 1999. Famine Early Warning System. FEWS Bulletin AFR/99-11, November 30, 1999.

World Bank. 1999. Cotton Policy Brief. June 1999. Washington, D.C.

Last modified: Sunday, March 17, 2013