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USDA Cotton & Wool Outlook


13 June 2014

USDA Cotton & Wool Outlook - 13 June 2014USDA Cotton & Wool Outlook - 13 June 2014


USDA Cotton & Wool Outlook

Global Cotton Stocks Projected to Rise Further in 2014/15

The latest U.S. Department of Agriculture (USDA) projections for 2014/15 indicate that world cotton stocks are expected to rise for the fifth consecutive season. Global ending stocks are now projected at a record 102.7 million bales for 2014/15, nearly 4 percent (or 3.7 million bales) above 2013/14 (fig. 1).

World cotton stocks have increased considerably over the past several seasons as relatively high cotton prices boosted global production but simultaneously limited growth in cotton mill use. The rise in global stocks has largely occurred in China due to government policies that included national reserve purchases; these policies supported global cotton prices by effectively keeping supplies out of the marketplace. Stocks in China at the end of 2013/14 are estimated at 60.3 million bales, or 61 percent of global stocks. While there have been policy adjustments in China, stocks are forecast to remain about unchanged in 2014/15 at 60.8 million bales, accounting for 59 percent of world stocks.

Domestic 

U.S. 2014 Cotton Production Projection Higher

USDA’s 2014 cotton crop projection was increased to 15.0 million bales this month (compared with 14.5 million in May) as abandonment expectations were reduced slightly to reflect recent rainfall in the Southwest. The latest crop projection is above the 2013 crop of 12.9 million bales but below the previous three seasons.

The planting estimate—currently at 11.1 million acres—will be updated in USDA’s Acreage report, which will be released on June 30th. This report will include actual plantings as of early June, as well as estimates for any remaining cotton to be planted. As of June 8th, 89 percent of the expected cotton area had been planted, slightly above last year’s 87 percent but below the 2009-13 average of 91 percent. Crop development has followed a similar pattern; as of June 8th, 8 percent of the cotton area was squaring, compared with 6 percent a year ago and a 5-year average of 10 percent.

Based on current projections, U.S. cotton harvested area is forecast at 8.75 million acres for 2014, reflecting an abandonment rate of 21 percent. Last season’s final abandonment rate was 27.5 percent. Historically, most cotton abandonment occurs in the Southwest region (Texas, Oklahoma, and Kansas) and this is also expected to be true for 2014. Abandonment in the Southwest is expected to reach 34 percent in 2014, below last season’s 46 percent and the lowest since 2010 (fig. 2). In 2011, a record 63 percent of the cotton area was abandoned in this region.

The Southwest is experiencing its fourth consecutive year of drought in 2014, as limited precipitation has fallen during this period. In 2011, precipitation was almost nonexistent in the all-important growing area of the Texas High Plains—where more than 60 percent of the region’s plantings occur. Below-average precipitation continued and the cumulative effect has reduced the subsoil moisture significantly (fig. 3). From January 2011-May 2014, accumulated precipitation on the High Plains reached only 60 percent of the average. While recent rains will benefit the start of this season’s crop, a persistent drought forecast remains in effect for the 2014 season and USDA’s early-season crop projection reflects these conditions.

The U.S. cotton yield is forecast at 823 pounds per harvested acre for 2014, compared with 821 pounds per harvested acre in 2013. USDA’s National Agricultural Statistics Service will begin “in field” production surveys in August.

Demand Unchanged for 2014/15; Stocks Increased

U.S. cotton demand for 2014/15 remains projected at 13.4 million bales or 5 percent below the 2013/14 estimate. Exports account for 9.7 million bales while mill use contributes the remaining 3.7 million bales. Despite higher U.S. cotton supplies in 2014/15, a lower world trade—particularly imports by China—is contributing to the lower U.S. export forecast. In 2014/15, the U.S. share of global trade is projected at 27 percent, up slightly from 2013/14. While U.S. export shipments are expected to decline, 2014/15 cotton mill use is forecast to rise about 3 percent; the U.S. textile industry remains very competitive and increased capacity is expected to be in place in 2014/15.

Based on these supply and demand estimates, U.S. ending stocks for 2014/15 are projected at 4.3 million bales, 1.6 million bales above the relatively low beginning level and the highest since 2008/09. The implied stocks-to-use ratio is estimated at 32 percent, also the highest in 6 years. The forecast for the 2014/15 U.S. average farm price is expected to range between 60 and 80 cents per pound, with the midpoint of this range 7.5 cents below 2013/14’s estimate of 77.5 cents per pound.

2013/14 Cotton Estimate Revisions

The U.S. cotton export estimate was revised upward this month to 10.5 million bales based on recent data from USDA’s Foreign Agricultural Service. Although up slightly from the previous month, 2013/14 exports remain 2.5 million bales below the previous season due largely to limited supply. By the end of May, U.S. cotton export commitments (shipments plus outstanding sales) had reached 10.8 million bales, while exports had totaled 9.3 million bales, or 89 percent of the estimate (fig. 4).

As a result, shipments through the end of July will need to average approximately 134,000 bales per week, which is below the May average of 215,000 bales per week. As a result of the export adjustment in June, U.S. cotton ending stocks were lowered. Ending stocks for 2013/14 are estimated at 2.7 million bales, the lowest in three seasons. The implied stocks-to-use ratio of 19 percent is also the smallest since 2010/11.

International Outlook

Global Cotton Production to Decline in 2014/15

Global 2014/15 cotton production is projected to decline 2 percent from a year ago to 115.9 million bales; lower expected crops in several major cotton-producing countries more than offset increases in the United States, Brazil, and Turkey. China’s 2014/15 production is forecast to decrease 8 percent from a year earlier to 29.5 million bales, the lowest since 2005/06. India’s production is expected at 28.5 million bales, nearly 7 percent below 2013/14, despite an increase in forecast area. Production in Australia is projected to decline 1 million bales to 3.1 million bales as an area reduction is expected due to low reservoir levels. In addition to the U.S. production increase for 2014/15, gains for Brazil (8.3-million-bale crop) and Turkey (2.9-million-bale crop) are expected to result from increased area. Production in Pakistan and Uzbekistan are projected to remain near year-ago levels.

World area harvested in 2014/15 is forecast at 33.0 million hectares, up marginally from the previous season’s 32.8 million hectares. Like production, area increases in a number of countries are somewhat offset by declines in others. The global cotton yield is forecast at 764 kg/hectare in 2014/15, down 20 kg/hectare from a year ago and the lowest since 2010/11.

World Cotton Consumption to Expand in 2014/15; Trade to Decrease

Global 2014/15 cotton mill use is forecast at 112.3 million bales, 2 percent above the previous season. Mill use in China is expected to rebound in 2014/15 to 37.0 million bales—up from an estimated 35.5 million bales this season and the highest in 3 years. During the last several seasons, China’s relatively high domestic cotton prices encouraged yarn imports and constrained domestic mill use. However, policy adjustments reducing price support levels are expected to boost cotton mill use in 2014/15. India’s consumption is projected to rise 2 percent to about 24.3 million bales, a record, as demand for India’s textile product exports is expected to remain strong. Expansion of cotton mill use in Pakistan is also likely to continue in 2014/15, reaching 11.3 million bales or 3 percent above a year earlier. In addition to gains for the United States, cotton mill consumption is also projected to rise in Turkey and Bangladesh.

World cotton trade, on the other hand, is forecast to reach only 35.6 million bales in 2014/15—13 percent below 2013/14 and the lowest in 4 years—due mainly to China’s expected reduction in raw cotton imports. In 2014/15, China is projected to import only 8.0 million bales of cotton, 5.5 million bales less than estimated for 2013/14 and one-third the level imported just 3 years ago—a record 24.5 million bales (fig. 5). Most other importing countries are expected to have offsetting changes in 2014/15; imports are forecast to rise in Bangladesh, Indonesia, and Pakistan, while declines are seen for Turkey and Vietnam.

Exports are projected to decrease in 2014/15 across major exporting countries with the exception of Brazil, which is rebounding from limited exportable supplies in 2013/14. Significant reductions are seen for India and Australia in 2014/15. For India, exports are forecast to decline 37 percent to 5.7 million bales, while shipments from Australia are projected to decrease 35 percent to 3.1 million bales. 

In addition to the 8-percent reduction seen for the United States in 2014/15, exports from Uzbekistan are expected to fall 7 percent to 2.5 million bales.

Global ending stocks are forecast to reach 102.7 million bales by the end of 2014/15, more than double the 2009/10 season when stocks fell to a low of 47.1 million bales (fig. 6). In response to very tight stocks, world cotton prices jumped dramatically to average $1.65 per pound in 2010/11 and $1.00 per pound in 2011/12. With China’s reserve policies supporting world prices beginning in 2011/12, global production has continued to outpace the demand for cotton fiber, leading to consecutive record stock levels. For 2014/15, the world cotton price is expected to decrease from this season’s 92-cent-per-pound average to around 80 cents per pound as the Government of China reduces market support. 

Published by USDA Economic Research Service

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