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USDA Cotton & Wool Outlook

16 September 2013

USDA Cotton & Wool Outlook- September 2013USDA Cotton & Wool Outlook- September 2013

USDA Cotton & Wool Outlook

The latest U.S. Department of Agriculture (USDA) estimates for 2013/14 project world cotton consumption at 109.5 million bales. With the adjustments made in September, 2013/14 global cotton consumption is now expected to increase 2 percent following the 4- percent growth experienced in 2012/13. Despite the projected rebound in 2013/14, the consumption forecast remains one of the lowest of the past decade, as competition with manmade fibers keeps cotton mill use from growing faster as the global economy expands.

The top four cotton-spinning countries—China, India, Pakistan, and Turkey—are forecast to account for a combined 70 percent of the world’s cotton mill use in 2013/14, below both last season and the 2009-11 season average. There have also been noteworthy shifts among the major spinners (fig. 1). For China, the global share is forecast to decline to 33 percent in 2013/14 as yarn imports there have expanded considerably in recent years and replaced some spinning. India and Pakistan have benefited, as their respective shares have risen to 21 percent and 11 percent; Turkey’s 2013/14 share is expected to remain near 6 percent.

Domestic Outlook 

2013 U.S. Cotton Crop Reduced in September

According to USDA’s September Crop Production report, the 2013 U.S. cotton crop is forecast at 12.9 million bales, 154,000 bales below last month’s forecast and 4.4 million bales below 2012 production. September’s projection resulted in a 1- percent reduction in the cotton crop as a lower national yield more than offset an increase in area.

U.S. upland production is forecast at approximately 12.3 million bales, nearly 26 percent below the 2012 crop and the second lowest since 1989. 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 2013 production will range between 11.4 and 13.2 million bales.

Compared with last season, 2013 upland cotton production is reduced in each region of the Cotton Belt as area and yield are forecast below 2012 levels (fig. 2). Based on the September forecast, the upland crop in the Southeast is expected to reach 4.5 million bales, slightly above the 5-year average. Although area is 4 percent below a year ago, the region’s yield—forecast at 830 pounds per harvested acre—is more than 200 pounds below 2012’s record.

In the Southwest, upland production is forecast at 4.4 million bales this season, 1 million bales below the 5-year average. The regional yield forecast of 605 pounds per harvested acre would be the third lowest in the past 10 years. The abandonment rate is forecast at 41 percent, nearly identical to that of 2012 but well below the record set in 2011 at 63 percent; the long-term average is approximately 25 percent.

In  the Delta, cotton production is only expected to approach 2.5 million bales in 2013, the lowest in 30 years, as area was reduced to a record low in response to the viability of alternative crops. Meanwhile, the regional yield forecast of 989 pounds per harvested acre would be the third highest on record. Similarly, the upland crop in the West is expected to be one of the lowest there since the mid-1940s. Smaller area devoted to upland cotton and a yield approaching last season’s record is expected to result in a regional crop of 885,000 bales. Meanwhile, extra-long staple (ELS) cotton production is concentrated in the West, particularly in California— where more than 95 percent of the ELS crop is produced. Lower area and yield this season are forecast to result in an ELS crop of 626,000 bales, 154,000 bales below the 2012 crop.

Total 2013 U.S. cotton area was estimated higher in September. Based on acreage reported to USDA’s Farm Service Agency (FSA), planted area was revised to 10.3 million acres. Harvested area was forecast at 7.8 million acres by USDA’s National Agricultural Statistics Service. Consequently, abandonment is projected at about 25 percent, similar to 2012’s 24 percent. The national yield is projected at 796 pounds per harvested acre, 91 pounds below last season’s 887-pound record. For current production estimates by State, see table 10.

U.S. cotton crop development continues to run behind last season and the 5-year average. As of September 8th, only 24 percent of the area had bolls opening, compared with 45 percent in 2012 and the 2008-12 average of 40 percent. Meanwhile, the 2013 U.S. cotton crop conditions remain similar to the 5-year average and slightly above 2012 (fig. 3). As illustrated, crop conditions have been fairly stable over the past 2 months and remain considerably above those of 2011. As of September 8th, 45 percent of the crop was rated “good” or “excellent,” compared with 41 percent last year, while 21 percent of the crop was rated “poor” or “very poor,” compared with 30 percent a year ago.

Demand and Stock Estimates Revised

For 2013/14, U.S. cotton exports were reduced in September due to increased competitiveness from India, where the crop projection was raised 1 million bales this month. U.S. cotton exports are now forecast at 10.4 million bales, 200,000 bales below the August forecast and the lowest export estimate since 2000/01. As a share of global cotton trade, U.S. exports are expected to account for 27 percent of world trade, equal to the average of the previous two seasons. U.S. mill use remains estimated at 3.5 million bales, the same as the revised 2012/13 estimate.

With September’s adjustments, the 2013/14 ending stock estimate is now forecast at 2.9 million bales, 1 million bales below last season. The stocks-to-use ratio is expected to approach 21 percent in 2013/14, 3 percentage points below last season. Based on the current supply and demand estimates, the 2013/14 average upland cotton farm price is forecast to range between 69 cents and 85 cents per pound. The midpoint of 77 cents is 5 cents above last season’s estimate. The final 2012/13 farm price will be released in October.

For 2012/13, slightly higher ending stocks are reflected in the September balance sheet. Based on stocks data collected by the FSA and adjustments made to account for cotton in transit at the end of the marketing year, U.S. ending stocks were increased to 3.9 million bales for last season, 550,000 bales above the beginning level, with a stocks-to-use ratio of 24 percent.

International Outlook

World Cotton Production Lowest in 3 Years

Global cotton production in 2013/14 is projected at 117.4 million bales, 1 million bales above last month’s estimate, largely due to an increase in India. Harvested area is estimated at 33.6 million hectares (83 million acres), the lowest since 2010/11, as relative price again favored alternative crops. Global production is forecast 3 percent below 2012/13 and 6 percent below 2011/12’s record.

In India, weather-driven improved crop prospects pushed the cotton production estimate up 1 million bales compared with the previous month, to a record 29 million bales. Cotton area is forecast at 12 million hectares and the yield is expected to reach 526 kg/hectare. This would be one of the highest ever for India, but still be well below the world average of 761 kg/hectare expected for 2013/14.

Cotton production in China—the largest producer—remains forecast at 33 million bales for 2013/14, 6 percent or 2 million bales below last season. A year-to-year reduction in harvested area and a lower yield are expected to keep the crop there at a 3-year low.

For Pakistan, the cotton crop remains projected at 9.7 million bales, 4 percent or 400,000 bales above 2012/13, based on higher yields. In Brazil, the 2013/14 cotton crop is expected to reach 7.2 million bales, 24 percent above the previous year’s relatively small crop.

Global Consumption Highest in 3 Years

World cotton consumption in 2013/14 is forecast at 109.5 million bales, marginally below the August forecast but 2 percent above the previous year. Although expanding slowly over the past several seasons, global cotton mill use remains well below 2006/07’s record 124 million bales. The loss of fiber share in apparel products continues to limit the potential for global cotton use.

Cotton mill use in China—the world’s largest spinner—remains projected in September at 36 million bales for 2013/14, equal to last season and the lowest in a decade. With the Government maintaining the system of a high domestic price floor again in 2013/14, domestic prices remain above world prices for raw cotton fiber. China has replaced some of its spinning with imported yarn as a result. Data available for the last three seasons indicate that cotton yarn imports by China have grown considerably (fig. 4). In 2012/13, China’s cotton yarn imports reached an equivalent of nearly 8.3 million bales of raw cotton, up 3 million bale-equivalents from 2011/12 and more than double the level imported in 2010/11. The largest yarn suppliers to China during this period included Pakistan, India, and Vietnam; combined, these three countries accounted for 72 percent of China’s cotton yarn imports during the past two seasons.

As beneficiaries of China’s demand for yarn imports, India and Pakistan have seen their consumption rise in recent years. Consumption there is currently forecast at 23.0 million bales and 11.7 million bales, respectively. India’s cotton mill use is expected to be a record-high, and Pakistan’s consumption is near its record of 12.0 million bales spun in both 2006/07 and 2007/08. Although Vietnam is a relatively small consumer of cotton, mill use there has grown significantly to a projected 2.5 million bales in 2013/14, compared with only 1.6 million bales just 3 years ago.

World Cotton Trade Smaller in 2013/14; Stocks At Record High

Global cotton trade is only expected to reach 39 million bales in 2013/14, 17 percent below the record of 46.7 million bales set in 2012/13. The reduced trade is attributable to the 9.3-million-bale decline in China’s expected raw cotton imports this season. Some of the stocks built up over the last several seasons are expected to be made available to the domestic spinning industry there, thus reducing the need for imports from the levels seen in 2011/12 and 2012/13. However, a number of other major importers are expected to purchase more cotton in 2013/14; these countries include Turkey, Pakistan, Indonesia, and Vietnam.

With reduced global import demand in 2013/14, competition among the major exporting countries will likely increase. All of the leading exporters are expected to see reduced shipments in 2013/14. In addition to a decline forecast for the United States, lower shipments are also projected for India (with exports of 7.0 million bales), Australia (4.2 million bales), and Brazil (2.6 million bales). For Australia and Brazil, sharply lower beginning stocks result in lower exportable supplies in 2013/14 compared with the previous year.

Based on the latest supply and demand projections, global cotton ending stocks are projected at a record 94.7 million bales in 2013/14, 10 percent above the beginning level. However, most of these stocks are being held by China and are currently unavailable to the global market. At the end of 2013/14, China is projected to hold 58.3 million bales in stocks or 62 percent of the world total. As a result, world cotton prices have remained at relatively high levels given the global cotton stocksto- use ratio of 86.5 percent projected for 2013/14.


Estimating Minimum Beginning Cotton Stock Levels for India— A Retrospective Evaluation

India’s role in the world cotton market has grown in recent years, as production, consumption, and trade have expanded. India is now both a major exporter and importer of cotton. Therefore, developments in India’s supply and demand, as well as changes in policies supporting prices and restricting exports, have a profound impact on world cotton trade and prices. USDA’s global crop forecasting system relies on a balance sheet approach to ensure the coherency of its production and consumption forecasts.1 USDA bases its estimates of India’s supply and demand of cotton mainly on official Government of India data sources. Due largely to incompatibilities among these sources, USDA has revised its historical estimates of India’s cotton stocks more frequently than its estimates of any other variable in its global cotton supply and demand database.

Imbalances between estimated supply and demand over the last several years have led USDA to include large positive residuals in India’s cotton balance sheet, starting with the 2006/07 data. These residuals result from analysis by USDA’s Interagency Cotton Estimates Committee (ICEC), which establishes a baseline for minimum cotton stock levels needed in India. The ICEC’s procedure for estimating minimum stocks is outlined here in the hope that it can be used to help reconcile the various estimates of India’s cotton sector activity.

Due to reliance on annual monsoon rains, most of India’s crop is harvested later than other cotton crops in the Northern Hemisphere, and the seasonal low point for cotton availability within India is the end of November. USDA’s balance sheet for Indian cotton is estimated on an August-July year. The method detailed in table A below relies on calculations of supply and use in the fall months to retroactively estimate minimum stock levels for the beginning of each marketing year. August 1st beginning stocks must be large enough to provide for utilization during the fall months, net of any additional supplies received either from imports or arrivals of new crop; in addition, the stocks on August 1st must be large enough to provide for minimum levels of mill and pipeline stocks at the low point of the season on November 30th.

In table A, line (a) is the Indian Government’s estimate of August-November volume of cotton consumption in India and line (b) is the volume of August- December exports, which effectively includes an allowance for stocks held by exporters on November 30th in order to cover export activity in December. Then, on line (e), a net demand is calculated after accounting for imports. Additional adjustments are needed to help determine the minimum stock level. Line (f) is an estimated minimum of 4.0 million bales to cover all other November 30th stocks, including stocks at gins, mills, and in transit. The 4.0-million-bale stocks target is netted against government-reported arrivals of new crop during August-November to derive a surplus or shortfall. Thus, if arrivals are less than 4.0 million bales, then the shortfall needs to be included in the estimated minimum stocks for August 1st; otherwise, the cotton distribution system would have insufficient cotton to support the activity that was reported to have occurred in the subsequent months.

USDA’s current Indian balance sheets for recent years include residuals ranging from 500,000 to 1.0 million bales; despite the inclusion of these adjustments, the beginning stocks for 2010/11 through 2012/13 remain below the minimum levels calculated using this method. The estimated minimum in table A would be equivalent to an average 35 percent stocks-to-use ratio for India. By comparison, U.S. stocks-to-use ratios can fall below 20 percent, due to a combination of an earlier harvest and a significantly smaller share of domestic consumption.

The retrospective evaluation presented here is a tool to help the ICEC analysis for India. The procedure illustrates the incompatibility among the supply and demand data from official sources in India and the need for inclusion of a residual until more definitive assertions about the estimate discrepancies can be determined. Agreement on minimum stock levels would be a constructive first step toward the development of a coherent and statistically stable balance sheet for Indian cotton.

Published by USDA Economic Research Service

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