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USDA Cotton & Wool Outlook


14 September 2012

USDA Cotton & Wool Outlook - September 2012USDA Cotton & Wool Outlook - September 2012


USDA Cotton & Wool Outlook

World Cotton Consumption To Rebound Slightly in 2012/13

The latest U.S. Department of Agriculture (USDA) estimates for 2012/13 project world cotton consumption at approximately 107.6 million bales. After the September reductions, 2012/13 cotton consumption is now projected to grow about 3 percent following a decline of 9 percent in 2011/12. Despite the rebound, the 2012/13 forecast remains the second lowest in nearly a decade as the weak global economy and competition from manmade fibers keep cotton use well below the levels experienced in the mid-2000s.

The top four cotton-spinning countries—China, India, Pakistan, and Turkey—are forecast to account for 71 percent of global cotton consumption in 2012/13, slightly below both last season and the average for the 2008-10 seasons; however, there have been shifts among the major spinners (fig. 1). For China, the leading cotton spinner, global share is forecast to decrease to 35 percent in 2012/13 as consumption shifts to lower cost spinners. India and Pakistan are benefiting as their shares are expected to reach 20 and 10.5 percent, respectively, with Turkey’s share remaining near 5 percent.

Share of Total Cotton Consumption by Major Spinner

Source: USDA, World Agricultural Supply and Demand Estimates reports.

Domestic

2012 U.S. Cotton Crop Lowered in September

According to USDA’s September Crop Production report, the 2012 U.S. cotton crop is forecast at 17.1 million bales, 3 percent below last month’s forecast, but still 10 percent above 2011 production. With the national yield similar to last month, lower U.S. area was responsible for the projected crop reduction.

The U.S. upland crop is estimated at approximately 16.5 million bales, nearly 12 percent above the drought-reduced 2011 crop and the second largest crop since 2007. During the previous 20 years, the September upland cotton forecast was below the final estimate 11 times and above it 9 times. Past differences between the September forecast and the final upland estimate indicate that chances are two out of three that the 2012 crop will range between 15.2 and 17.7 million bales.

Compared with last season, 2012 upland cotton production by region is mixed, with the crop rebounding in the Southwest, unchanged in the Southeast, and lower in the Delta and West regions (fig. 2). Based on the September forecast, the upland crop in the Southwest is expected at 6.3 million bales, well above last season’s drought-reduced crop but equal to the 10-year average. For the Southeast, the September forecast placed the crop at 5.1 million bales, one of the highest during the last decade with the regional yield forecast at a record 895 pounds per harvested acre.

In contrast, crops in the Delta and West are expected to decline from a year ago as reduced area more than offset above-average yields. In the Delta, the 2012 cotton crop is forecast at 3.8 million bales, 16 percent below 2011 but similar to 2010. In the West, a record upland yield of 1,554 pounds per harvested acre is forecast to produce a crop of about 1.3 million bales. In addition, the extra-long staple (ELS) crop—largely grown in the West—is forecast at 657,000 bales, nearly 200,000 bales below last season as area was reduced considerably.

US Regional Upland Cotton Production

Source: USDA, NASS, Crop Production reports.

Total 2012 U.S. cotton planted and harvested area was estimated lower in September. Based on acreage reported to USDA’s Farm Services Agency (FSA), planted area was placed at 12.4 million acres. Harvested area was forecast at 10.4 million acres by USDA’s National Agricultural Statistics Service (NASS). As a result, abandonment is projected at 15.5 percent, well below last season’s 36 percent. Meanwhile, the national yield is forecast at 786 pounds per harvested acre, 4 pounds below last season and 28 pounds below the 5-year average. For current production estimates by State, see table 10.

Demand and Stock Estimates Revised

For 2012/13, U.S. cotton exports were reduced slightly as a result of declines in both world imports—particularly for China—and the U.S. crop. U.S. exports are now forecast at 11.8 million bales, 300,000 bales below the August projection and similar to shipments in 2011/12. As a share of world cotton trade, the U.S. export forecast indicates a share of 32 percent, between last season’s 26 percent and 2010/11’s 39 percent.

As a result of September’s adjustments, the 2012/13 ending stock estimate is now forecast at 5.3 million bales, just over 2 million bales above last season. The stocks-to-use ratio is forecast to rise considerably from 22 percent in 2011/12 to 35 percent this season. Based on the current supply and demand estimates, the 2012/13 average upland cotton farm price is forecast to range between 62 cents and 78 cents per pound. The midpoint of 70 cents would represent a 21-percent decrease from last season’s 88.5-cent estimate. The final 2011/12 farm price will be released in October.

For 2011/12, slightly higher ending stocks are reflected in the September balance sheet. Based on stocks data collected by FSA and adjustments made to account for cotton in transit at the end of the marketing year, U.S. ending stocks were increased to 3.35 million bales for last season, 750,000 bales above the beginning level, but still one of the lowest levels of the last decade.

U.S. Textile Trade Deficit Declines in First Half of 2012

Amid the sluggish global economy, total U.S. textile fiber trade was lower during the first half of 2012 compared with a year ago. Total imports during the first 6 months of 2012 reached 7.8 billion (raw-fiber equivalent) pounds, 4 percent below a year earlier. During the same period, textile exports approached 1.8 billion pounds, slightly below the first 6 months of 2011. As a result, the textile trade deficit for January-June 2012 reached only 6 billion pounds, compared with 6.3 billion pounds during the corresponding period of 2011.

Cotton products continue to account for most of U.S. textile and apparel trade, although the recent share has declined as a result of fiber substitution. During the first half of 2012, cotton product imports reached only 3.8 billion pounds, down from 4.2 billion during the first half of 2011. Similarly, cotton textile exports reached 814 million pounds through June 2012, compared with 962 million through the corresponding period in 2011. As a result, the cotton product deficit for the first 6 months of 2012 equaled 3 billion pounds, about 8 percent less than in 2011.

For cotton product imports, the top five suppliers combined for nearly 63 percent of the total during January-June 2012, compared with 61 percent a year earlier and 62 percent for calendar year 2011. Among the leading suppliers, only the import volume from India grew during the first 6 months of 2012. The share of total imports increased for both China and India, while remaining unchanged for the other top suppliers (fig. 3). China accounts for more than 30 percent of U.S. cotton textile and apparel imports, with India contributing more than 9 percent.

For U.S. cotton product exports, the top five destinations through the first 6 months of 2012 accounted for a steady share of nearly 85 percent of the total. Of the top five destinations, only exports to Canada were higher than the comparable period of 2011. The share of total exports was mixed for the top countries (fig. 4). Honduras was the leading destination but its share is declining, falling below 36 percent during the first half of 2012; the share also decreased for the Dominican Republic. For Mexico—the second leading destination—the share rose to nearly 19 percent, similar to calendar year 2010; the shares for El Salvador and Canada continued their trend higher during the first half of 2012.

Leading Suppliers of US Cotton Textile Imports

Source: USDA, Economic Research Service; and USDC, U.S. Census Bureau.

Leading Destinations of US Cotton Textile Exports

Source: USDA, Economic Research Service; and USDC, U.S. Census Bureau.

International Outlook

Global Cotton Production Down in 2012/13

World 2012/13 cotton production is forecast to decline 8 percent from the previous year to 114.0 million bales. Global area harvested is forecast at 33.9 million hectares, down 5 percent from a year earlier. The expected decline is a reflection of lower crops in major producing countries, where more profitable alternatives and lower mill use demand have combined to create disincentives to cotton farmers.

Australia and Brazil, which account for most Southern Hemisphere production, are expected to produce 4.3 million bales and 6.1 million bales in 2012/13, down 18 percent and 30 percent, respectively, from the preceding year. In Brazil, despite the added advantage of a second (safrinha) cotton crop, strong soybean prices are expected to result in lower cotton area (950,000 hectares) by 32 percent from a year ago. China and India are forecast to produce 31.0 million bales and 24.5 million bales, a reduction of 7.5 percent and 11 percent, respectively. China’s area harvested is forecast at 5.0 million hectares in 2012/13, a 9-percent decrease from a year earlier. This will be China’s lowest cotton area in a decade. India’s 2012/13 area is forecast at 11.5 million hectares, down 6 percent from the preceding crop year.

Pakistan and Uzbekistan are forecast to produce 9.7 million bales and 4.1 million bales in 2012/13, a decrease of 8.5 percent and 2 percent, respectively, from the previous year. Pakistan’s harvested area is expected to decline 6 percent from a year ago to 3.0 million hectares. In Uzbekistan, 2012/13 area is forecast at nearly 1.3 million hectares, down 4 percent from the preceding year. The United States is expected to produce 17.1 million bales in 2012/13, up 10 percent from the previous year, and the only major cotton-producing country where production is expected to rise. U.S. harvested area is forecast at 4.2 million hectares, an 11-percent increase from the preceding year.

World Ending Stocks To Rise as Production Outpaces Consumption

World 2012/13 cotton consumption is forecast at 107.6 million bales, down 600,000 bales from the previous month, but up 3 percent from the previous year, reflecting the combination of relatively sluggish global economic conditions and a price environment more favorable for consumption than a year ago. If realized, this will be the third consecutive year in which global mill use is less than global production. China, which accounts for 35 percent of global consumption, is expected to consume 38.0 million bales, down 1.0 million bales from last month and 2.6 percent from the preceding year. If realized, China’s expected mill use will be the lowest in nearly a decade. China’s price support and national reserve policies continue to erode margins for domestic cotton spinners, resulting in a loss of market share.

India and Pakistan are forecast to consume 21.5 million bales and 11.3 million bales in 2012/13, an increase of 7 percent and 11 percent, respectively, from the previous year. While 2012/13 mill use is expected to remain flat in Turkey, the United States is expected to increase consumption by 3 percent to 3.4 million bales.

The weak global mill use demand and a relatively higher crop are expected to result in record 2012/13 ending stocks. World ending stocks are forecast at 76.5 million bales, up 9.5 percent from a year ago. China’s ending stocks are forecast at 35.5 million bales, up 16 percent from a year earlier, accounting for 46 percent of global stocks. Australia is forecast to carry a record 3.5 million bales in ending stocks, up 5 percent from a year ago. Ending stocks in India and Pakistan are forecast at 8.2 million bales and 3.4 million bales, respectively, an increase of 6.5 percent and 10.6 percent from the previous year. India’s share will be 11 percent of global ending stocks, while Pakistan’ share will be 4 percent. The United States is expected to carry 5.3 million bales in ending stocks, up 58 percent from a year earlier. The expected rise in global ending stocks has put a downward pressure on world cotton prices (fig. 5).

Global Cotton Trade Declines in 2012/13

Global 2012/13 cotton trade is forecast at 36.6 million bales, up 800, 000 bales from last month. Nonetheless, world trade is expected to decline 9 percent from a year ago. The decrease in global cotton trade is a reflection of weak expected imports by China, where 2012/13 imports are projected to decline 51 percent from last season’s record to 12.0 million bales. Bangladesh and Indonesia are forecast to import 3.6 million bales and 2.2 million bales in 2012/13, respectively, an increase of 14 percent and 9 percent from the previous year. Imports by Pakistan and Turkey are forecast to increase 140 percent and 26 percent, respectively, to 2.4 million bales and 3.0 million bales.

Australia and Brazil are forecast to export 4.2 million bales and 4.0 million bales in 2012/13, respectively, down 8 percent and 17 percent from a year earlier. India is projected to export 3.5 million bales, down 200,000 bales from last month, but up 67 percent from the previous year. Revisions in India’s 2010/11 and 2011/12 balance sheets reflect recent updates by the nation’s Cotton Advisory Board.

Rising Global Stocks Weaken Cotton Prices

Sources: Cotlook and USDA.
Note: A-index for 2012/13 is projected.

September 2012

Published by USDA Economic Research Service

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