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USDA Cotton & Wool Outlook

14 August 2014

USDA Cotton & Wool Outlook - 14 August 2014USDA Cotton & Wool Outlook - 14 August 2014

USDA Cotton & Wool Outlook

Global Cotton Stocks Continue to Rise in 2014/15

The latest U.S. Department of Agriculture (USDA) estimates for 2014/15 project global cotton stocks to reach a record at 105.1 million bales, compared with 100 million bales at the end of 2013/14. Stocks are forecast to rise for the fifth consecutive season in 2014/15. World cotton production—although declining—is projected to exceed a rising mill demand as expected changes to China’s cotton policies push world prices lower.

While global stocks are expected to increase 5 percent in 2014/15, the growth is mainly due to higher stock forecasts in countries outside of China, including the United States. Increased U.S. stocks are the result of a rebound in production, while stocks in China only rise slightly as policy changes to reduce reserve stocks are implemented. China will continue to hold the largest share of global cotton stocks, accounting for about 59 percent of the world total in 2014/15 (fig. 1). The U.S. share is expected to rebound from 2013/14’s low to more than 5 percent, while the rest of the world accounts for approximately 35 percent of world cotton stocks.


2014 U.S. Cotton Production Forecast Increased in August

According to USDA’s first survey-based forecast of the 2014 crop, U.S. cotton production is forecast at 17.5 million bales, 1 million bales above July’s projection and 4.6 million bales (36 percent) above last season’s crop. The 2014 production increase is primarily the result of larger area, as the national yield is forecast similar to 2013.

Based on the August forecast, total cotton planted area in 2014 is estimated at nearly 11.4 million acres, the same area reported in the June Acreage report but 9 percent above a year ago. Harvested area, however, is expected to increase 36 percent as rainfall in the Southwest has reduced the abandonment forecast dramatically from 2013. Based on the August forecast, the 2014 national abandonment rate is projected at 10 percent while the final 2013 rate was 28 percent. The U.S. yield is forecast at 820 pounds per harvested acre, similar to 2013’s 821 pounds.

Upland production is projected at 16.9 million bales, 4.7 million bales above the 2013 crop. During the previous 20 years, the August upland cotton production forecast was above the final estimate 10 times and below it 10 times. Past differences between the August forecast and the final upland production estimate indicate that chances are two out of three for the 2014 crop to range between 15.5 and 18.4 million bales.

Compared with the 2013 crop, upland production is expected to rise in three of the four Cotton Belt regions (fig. 2). Based on the August estimates, the Southwest crop is forecast to jump dramatically as beneficial rainfall has reduced abandonment expectations significantly from the last several seasons. Upland production there is projected at 7.5 million bales in 2014, compared with only 4.4 million in 2013. Abandonment for the region is forecast at 16 percent, compared with over 40 percent during the previous three seasons. Meanwhile, the yield is expected at 639 pounds per harvested acre, which is near the 5-year average.


In the Southeast, production is forecast at 5.4 million bales in 2014, the largest in two seasons and about one-third of the U.S. cotton crop. Both area and yield are above year-ago levels. Cotton area rose in the Delta in 2014 to nearly 1.5 million acres but remains at one of the lowest levels on record. A record yield expectation of 1,096 pounds per harvested acre—along with average abandonment—is forecast to push the crop to 3.3 million bales, the highest since 2012.

In the West, upland production is projected to reach only 746,000 bales in 2014 as a lack of irrigation supplies reduced area to a level similar to 5 years ago. However, a record yield of 1,550 pounds per harvested acre is expected to keep production from falling further from 2013’s 873,000 bales. Extra-long staple (ELS) cotton production continues to be concentrated in California, where 90 percent of the ELS crop is expected to be produced in 2014. Smaller area and a lower yield are projected to result in an ELS crop of 556,000 bales, 78,000 bales below last season.

U.S. cotton crop development is ahead of last season and the 5-year average. As of August 10th, 83 percent of the cotton area was setting bolls, compared with 70 percent last season and the 2009-13 average of 80 percent. Most States were near their historical averages, but boll setting in Oklahoma and South Carolina was 25 percent or more above the 5-year average. Meanwhile, 2014 U.S. cotton crop conditions have remained fairly stable since reporting began in early June (fig. 3). As of August 10th, the 2014 crop conditions are above recent years, with 52 percent of the crop area rated “good” or “excellent,” compared with 43 percent last year, while 14 percent was rated “poor” or “very poor,” compared with 25 percent a year ago. The higher crop conditions this season are attributable to the improvement in the Southwest region, particularly in Texas.


Demand and Stocks Revised Upward

In August, U.S. cotton demand for 2014/15 was increased to 14.5 million bales, nearly 400,000 bales above last season but still one of the lowest in recent history. Although U.S. exports are projected higher and continue to account for most of the cotton demand, U.S. mill use also is expected to rise. U.S. cotton mill use is forecast at 3.8 million bales, 200,000 bales above the 2013/14 estimate; capacity expansion and lower cotton prices are expected to boost U.S. cotton mill use to its highest since 2010/11. U.S. exports, on the other hand, are projected at 10.7 million bales, up about 200,000 bales from the revised 2013/14 estimate but one of the lowest levels in over a decade. Reduced foreign import demand—mainly from China—is expected to limit global trade in raw cotton in 2014/15 to a level similar to 2010/11. The U.S. share of world trade is projected to increase in 2014/15 to 29.5 percent, the largest share in four seasons.With increased exportable supplies this season, U.S. exports have the potential to expand if global demand grows further.

With forecasts of U.S. production exceeding demand for the first time in four seasons, ending stocks are projected to increase 3 million bales in 2014/15 to 5.6 million bales, the highest since 2008/09. The stocks-to-use ratio is also rising to 39 percent, the highest since 2007/08 when the ratio equaled 55 percent. As of August, the 2014/15 upland farm price is forecast to range between 58 and 72 cents per pound. The midpoint of 65 cents per pound is 12.5 cents below the 2013/14 estimate of 77.5 cents per pound.

2013/14 Supply and Demand Adjustments

With the 2013/14 season ending in July, adjustments were made this month and the estimates will be finalized over the next several months as additional end-of-year data become available. U.S. exports were increased slightly to 10.53 million bales based on data published in the U.S. Export Sales report. Revisions in August also included a 100,000-bale reduction in ending stocks to 2.6 million bales as stocks data from the USDA’s Farm Service Agency suggest that U.S. cotton stocks are lower than the calculation indicated by supply minus use. USDA will continue to review estimates of 2013/14 supply and demand, collect additional stocks data, and make further revisions in subsequent reports.

U.S. Cotton Textile Trade Deficit for First Half of 2014

Cotton products continue to account for most of U.S. textile and apparel trade, although manmade fiber share has increased in recent years due to fiber substitution. During the first half of 2014, U.S. cotton products imports reached 4.0 billion (raw-fiber equivalent) pounds, nearly identical to that of the first 6 months of 2013. Cotton product exports were also similar for the first half of both years, approaching 900 million pounds each. As a result, the cotton product deficit for the first 6 months of 2014 and 2013 equaled 3.1 billion pounds, up slightly from the comparable period in 2012.

For cotton product imports, the top five suppliers accounted for nearly 63 percent of the total during January-June 2014, equal to a year earlier. Among the leading suppliers, the import volume grew only from India and Vietnam during the first 6 months of 2014 when compared with a year earlier. The share of total imports increased, however, for India, Pakistan, and Vietnam, while declining slightly for China and Bangladesh (fig. 4). China accounts for 30 percent of U.S. cotton textile and apparel imports, with India contributing an additional 10 percent.

For U.S. cotton product exports, the top five destinations through the first 6 months of 2014 accounted for 84 percent of the total, compared with 81 percent during the corresponding period in 2013. Of the top destinations, Honduras, Mexico, and the Dominican Republic received more product volume from the United States during the first half of 2014 than they did during the same period in 2013, which also resulted in a larger share of total U.S. exports (fig. 5). The volume and share for the other leading destinations were similar to a year earlier.


International Outlook

Global Cotton Production Lower in 2014/15 but Above Consumption

World cotton production in 2014/15 is forecast at 117.6 million bales, 1.2 million bales above last month’s projection but slightly below 2013/14. Higher production forecasts in August for the United States and India—resulting from increased harvested area expectations—are partially offset by reductions elsewhere. Global cotton area in 2014/15 is forecast at 33.9 million hectares, up 3.5 percent from 2013/14. Despite a third consecutive season of lower world production and rising world consumption, production remains 5 million bales above consumption in 2014/15 (fig. 6).

In China—the largest producing country—the cotton crop is projected at 29.5 million bales in 2014/15, down 8 percent from 32 million bales last season. The reduction is due largely to fewer incentives for planting cotton in China’s eastern provinces. Total area in China is projected to decline 11 percent to 4.35 million hectares, with a record yield forecast at 1,477 kg/hectare.

India, Brazil, and Australia are also expected to see their crops decline in 2014/15. For India, the late monsoon will likely benefit cotton; some area originally expected to be devoted to alternative crops—with an earlier planting window—is now projected to move to cotton. Area is now forecast at a record 12.2 million hectares, but with yields reduced due to the delayed monsoon, a crop of only 29.0 million bales is projected (5 percent below the previous year). In Brazil, cotton area and production are both expected to decline 6 percent in 2014/15; area is estimated at nearly 1.1 million hectares while the crop is forecast at 7.3 million bales, 500,000 below 2013/14. In Australia, limited water supplies are expected to further reduce the crop to 2.5 million bales in 2014/15, a 39-percent decrease in production as area is cut significantly.

Global cotton consumption in 2014/15 is forecast at 112.6 million bales, up 1.2 million bales from last month and above the previous three seasons. World cotton consumption remains well below 2006/07’s record of 124.0 million bales although a modest growth of nearly 4 percent is projected this season as consumer demand for textile and apparel products increases and raw cotton becomes more pricecompetitive with manmade fibers.

Mill use in China is projected at 36.5 million bales in 2014/15, 2 million bales (6 percent) above the previous season. Cotton yarn imports by China are expected to decline in 2014/15 as cotton produced domestically becomes more competitive due to the expected reductions in the government price support. Uncertainties about future policies, however, may limit China’s cotton mill use potential in 2014/15.

India’s consumption is forecast to increase about 1.3 million bales in 2014/15 to nearly 24.8 million bales, a record, as strong demand for India’s cotton product exports continues. Mill use in Pakistan and Turkey is expected to expand further in 2014/15; Pakistan’s use is projected at 11.0 million bales (similar to 2012/13) while Turkey’s consumption expands for the third consecutive season to 6.5 million bales.

World Cotton Trade to Decline in 2014/15

Global cotton trade is projected at 36.3 million bales in 2014/15, 11 percent below last season and 22 percent below 2012/13’s record of 46.7 million bales. The decline is largely attributable to the anticipated reduction in China’s imports—now forecast at 8.0 million bales, compared with 13.6 million bales last season—as the Government is expected to limit imports in order to boost consumption of surplus domestic cotton supplies. However, increases in several other countries will help offset a portion of China’s decline, including Pakistan, Bangladesh, and Vietnam. Reduced global import demand for cotton is expected to limit shipments for many of the world’s exporting countries. Lower production in Australia will constrain exports, as will India’s lower crop and higher consumption. Export increases are seen for Brazil and the United States.

Global Ending Stocks at Record Level

World cotton stocks are projected at a record 105.1 million bales in 2014/15, 5 percent above a year earlier and the fifth consecutive increase from 2009/10’s recent low of 47.1 million bales (fig. 7). In 2014/15, China is expected to account for the bulk of these stocks with its own record of 62.4 million bales; the China stocks equate to more than half of this season’s global cotton consumption forecast. As a result of the rising stocks and anticipated policy effects in China, global cotton prices are expected to decline in 2014/15. The Cotlook A-Index, which averaged $1.65 per pound in 2010/11, averaged about 91 cents per pound in 2013/14 and is likely to average below 80 cents per pound this season.

Published by USDA Economic Research Service

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