January 2002 Edition:
Argentine Devaluation Possible Key to Long Term Recovery
On January 6th, Argentina devalued its currency 28.6 percent. Because most debts in Argentina, including mortgages and corporate loans, are denominated in dollars, the devaluation may cause liquidity problems for many farms and mills, hurting cotton production and consumption in the short-run. Accordingly, forecasted production for MY 2001/02 has been revised downward this month to 330,000 bales from 450,000 bales in December. Consumption is expected to be 250,000 bales in MY 2001/02, down from the December forecast of 300,000 bales. Last year, Argentina produced 735,000 bales and consumed 350,000.
However, to the extent that an overvalued currency has severely weakened the competitiveness of Argentine cotton in the past few years (particularly with respect to its primary trading partner and competitor, Brazil) the devaluation could contribute to a long-run recovery of Argentinas cotton sector. As recently as 1996/97, Argentina was the worlds tenth largest producer, with a crop larger than Brazils. Since that time, Brazils floating currency depreciated some 60 percent against the Argentine peso; Argentinas production fell over 80 percent and Brazils rose over 80 percent. Just as Brazils production surged following the dramatic depreciation of the Real in 1999, the decline of Argentinas cotton production may be reversed over the next few years.
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TABLE OF CONTENTS
World Cotton Outlook
U.S. Cotton Highlights
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