USDA Cotton & Wool Outlook

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13 December 2012

USDA Cotton & Wool Outlook - December 2012

Record 2012/13 Foreign Cotton Stocks Bolstered by China

The latest U.S. Department of Agriculture (USDA) cotton projections for 2012/13 indicate that foreign ending stocks are expected to reach a record 73.5 million bales, 11 percent above 2011/12. Stocks have risen considerably over the last 2 years as a result of recent record cotton prices that encouraged increased production but reduced demand. In addition, China’s policies that support domestic prices above world prices have led to significant stock-building.

While foreign cotton ending stocks are expected to rise for the third consecutive season, the stock growth has been extraordinary in China (fig. 1). In 2010/11, China’s stocks reached a 15-year low of 10.6 million bales and significant rebuilding of the national reserve began. By the end of 2012/13, China’s stocks are projected to total nearly 37 million bales, or the equivalent of 12 months of mill use there; China alone will hold half of the foreign cotton stocks, but their availability to the market remain uncertain.

Foreign Cotton Ending Stocks

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

Domestic

2012 U.S. Cotton Crop Slightly Higher in October

According to USDA’s October Crop Production report, the 2012 U.S. cotton crop is estimated at 17.3 million bales, up marginally from last month’s forecast but 1.7 million bales (11 percent) above the 2011 production. With harvested area unchanged in October and the national average yield slightly higher, the U.S. cotton crop estimate increased 178,000 bales this month.

The U.S. upland cotton crop is estimated at 16.6 million bales, above both last season and the 5-year average. During the previous 20 years, the October forecast has been below final cotton production 12 times and above 8 times. Past differences between the October forecast and the final production estimate indicate that chances are two out of three that the 2012 U.S. upland crop will range between 15.8 and 17.5 million bales.

Upland production this season is forecast to rise for two of the Cotton Belt regions this season (fig. 2). In the Southwest, the 2012 upland cotton crop is projected at 6.3 million bales, considerably higher than last season’s drought-reduced crop but near the 10-year average. Planted area abandoned is estimated at 26 percent, near the 5-year average, while the Southwest yield is forecast at 591 pounds per harvested acre, nearly 100 pounds below the average. In the Southeast, the cotton crop is estimated at 5.1 million bales, the highest in 7 years, as the regional yield improved to a record 900 pounds per harvested acre. The Southeast cotton crop has risen for five consecutive seasons.

US Regional Upland Cotton Production

Source: USDA, NASS, Crop Production reports.

In the Delta, the crop is currently estimated at nearly 4 million bales, down from last season but equal to the 5-year average. The average yield is expected to reach 967 pounds per harvested acre, the third highest on record. Likewise, in the West, the upland cotton crop is forecast at 1.2 million bales, down from last year but above the 5-year average. The West’s yield is projected at a record 1,542 pounds per harvested acre. In addition, California continues to account for most of the extra-long staple (ELS) crop. ELS production is forecast at 657,000 bales, 23 percent below 2011, with California contributing more than 95 percent of the total.

Total 2012 U.S. cotton harvested area is estimated at 10.4 million acres, about 1 million acres above last season, despite a lower planted area. The national yield is forecast at 795 pounds per harvested acre, 5 pounds higher than the 2011 yield but 19 pounds below the 5-year average. For current production estimates by State, see table 10.

2012/13 Demand and Stock Estimates Adjusted

The U.S. cotton demand estimate for 2012/13 was lowered slightly this month as higher foreign production and reduced imports—particularly by China—are projected to keep U.S. cotton demand from expanding from last season. U.S. demand is currently forecast at 15 million bales, with exports accounting for 11.6 million bales (77 percent of the total) and mill use contributing the remainder. Foreign stocks jumped dramatically last season and begin this season at a record 66.2 million bales; however, over 45 percent of the total is estimated to be held by China, where national reserve policies account for the buildup. Meanwhile, forecast imports by China are down by more than 50 percent, which will reduce world trade this season. The U.S. share of world trade is forecast at 32 percent, above last season but below the 5-year average of about 36 percent.

As a result of the latest supply and demand estimates, U.S. ending stocks were revised upward in October to 5.6 million bales, two-thirds more than the final 2011/12 ending stock estimate. The stocks-to-use ratio is forecast at 37 percent compared with last season’s 22 percent. Both the stock level and the ratio are at their highest in 4 years.

2012/13 Farm Price Range Narrowed; 2011/12 Price Finalized

Based on the most recent prices and the latest supply and demand estimates, the average upland cotton farm price is now forecast to range between 62 cents and 74 cents per pound. The midpoint of 68 cents would represent a considerable decrease from last season’s final estimate of 88.3 cents per pound released by USDA in October. The 2011/12 price was nearly 7 cents higher than the average price recorded for 2010/11. The lower price expectations for 2012/13 contributed to reduced cotton area and will play a key role in acreage decisions for 2013.

International Outlook

Global 2012/13 Crop To Decline

Global 2012/13 cotton production is forecast to decline 6 percent from the previous year to 116.3 million bales as the rising prices of competing crops and the declining price of the fiber render cotton cultivation less profitable. Although lower compared with the previous year’s crop, October production numbers represent an upward revision of the previous month’s forecast, reflecting increases in the 2012/13 forecasts for Brazil, China, India, Pakistan, and the United States.

Brazil and China are forecast to produce 6.5 million bales and 31.5 million bales in 2012/13, respectively, a decrease of 25 percent and 5 percent from a year ago. In China, official support for grains and the rising cost of cotton production are some of the factors contributing to the 2012/13 production decline. China’s harvested area is expected to decline 9 percent from a year ago to 5.0 million hectares in 2012/13. In Brazil, relatively stronger prices for soybeans and lower foreign demand for cotton are expected to shift area from cotton production. Brazil’s 2012/13 area is forecast at 1.0 million hectares, down 29 percent from the preceding year.

India and Pakistan are expected to grow 25.5 million bales and 10.0 million bales in 2012/13, respectively, down 7 percent and 6 percent from a year earlier. Harvested area in India and Pakistan is forecast at 11.7 million hectares and 3.0 million hectares, respectively, down 4 percent and 6 percent from a year ago. Australia and the United States are forecast to produce 4.3 million bales and 17.3 million bales, respectively, in 2012/13. The 2012/13 crop forecast represents a 23-percent decrease in Australia and an 11-percent increase in the United States—the only major producer expected to increase production from the previous year.

Global harvested cotton area is forecast at 34.1 million hectares in 2012/13, a decrease of 5 percent from the preceding year. World 2012/13 yield is forecast at 743 kilograms per hectare.

World Mill Use and Ending Stocks To Rise in 2012/13

World 2012/13 cotton consumption is forecast to increase 3.6 percent from a year earlier to 106.9 million bales. China—the world’s largest mill user—is expected to consume 36.0 million bales, a decrease of 2.0 million bales (5 percent) from the preceding year due to the Government’s ongoing high domestic support price. China’s expected mill use decline will reduce its share of 2012/13 global cotton consumption to 34 percent, the lowest in nearly a decade (fig. 3). The expected mill use decline in China, however, is more than offset by consumption increases in other countries, including Bangladesh, India, Indonesia, Pakistan, Thailand, Turkey, and Vietnam.

India and Pakistan are forecast to consume 22.0 million bales and 11.5 million bales, respectively, up 10 percent and 14 percent from a year earlier. Bangladesh and Turkey are expected to use 3.6 million bales and 6.0 million bales, respectively, in 2012/13, up 13 percent and 7 percent from the preceding year. India, Pakistan, and Turkey will account for 21 percent, 11 percent, and 6 percent of global 2012/13 cotton consumption, respectively.

Global production is expected to exceed consumption for the third consecutive year in 2012/13. The gap between world production and consumption will increase global ending stocks to 79.1 million bales, up 14 percent from the previous year. Estimated 2012/13 world ending stocks are 2.6 million bales higher in USDA’s October estimates compared with September. While China is expected to account for 46 percent of global 2012/13 ending stocks, India, Brazil, and the United States are expected to account for 11 percent, 8 percent, and 7 percent, respectively.

World Cotton Trade Forecast To Decline in 2012/13

World 2012/13 cotton imports are forecast at 36.5 million bales, down 18 percent from a year ago largely due to an expected sharp decline in China’s 2012/13 cotton imports. China—the leading global importer of the fiber—is forecast to import 11.0 million bales in 2012/13, down 55 percent from a year ago. China’s expected cotton import decline—due to lower expected domestic mill use and Government import and reserve policies—will reduce the country’s share of 2012/13 global trade to 30 percent, compared with 55 percent in the previous year.

The forecast decline in China’s 2012/13 imports is expected to be partially offset by other major importers, including Bangladesh, Indonesia, Pakistan, and Turkey. Bangladesh and Indonesia are forecast to import 3.6 million bales and nearly 2.3 million bales, respectively, in 2012/13, an increase of 14 percent each from the preceding year. Pakistan and Turkey are forecast to import 2.4 million bales and nearly 3.5 million bales in 2012/13, up 140 percent and 45 percent, respectively, from the previous year.

Exports for Australia and Brazil are projected to decline 5 percent and 17 percent, respectively, from a year earlier to 4.4 million bales and 4.0 million bales. India’s exports are forecast at 3.5 million bales in 2012/13, down 67 percent from the preceding year, and dropping the country’s share of world exports from 23 percent in 2011/12 to less than 10 percent in 2012/13. The United States is expected to export 11.6 million bales in 2012/13, marginally below last season.