PDF Cotton Outlook

United States Department of Agriculture

Cotton Outlook

Friday, February 23, 2018 oce/forum

Agricultural Outlook Forum 2018

Presented Friday, February 23, 2018

THE WORLD AND UNITED STATES COTTON OUTLOOK James Johnson, Stephen MacDonald, Leslie Meyer, and Lyman Stone. U.S. Department of Agriculture

Introduction

World Production, Consumption, and Prices

2013/14 through 2018/19 projection

Production Consumption A Index

140

100

130

90

120

80

110 70

100 60

90

80

50

70

40

60

30

2013/14 2014/15 2015/2016 2016/2017 2017/18 2018/19

Mil. bales Cents/lb.

The U.S. Department of Agriculture's (USDA's) first 2018/19 world cotton projections anticipate that consumption will exceed production, bringing world stocks down by 6 million bales, more than offsetting 2017/18's 900,000-bale increase. World cotton production is expected to fall 3.6 percent with yields declining in some countries and area falling in a number of producing countries. Global consumption is expected to continue growing, but at a more moderate pace. It is expected that China will continue to pursue policies limiting imports in order to dispose of surplus government-held stocks. The A Index is forecast to decline about 10 cents to 73 cents per pound due to projected higher stocks outside of China.

U.S. 2018/19 cotton production is expected to fall to 19.5 million bales, based on a 5.5-percent increase in planted area, offset by higher abandonment and lower yields. Domestic mill use is projected marginally above the 2017/18 level, and exports are expected to rise, but ending stocks are expected to remain unchanged.

Mil. bales

World Cotton Situation, 2017/18

World Cotton Production, 2017/18

Estimated Changes in World Production, 2017/18 compared with 2016/17

5.0 4.0 3.0 2.0 1.0 0.0

Global 2017/18 cotton production is expected to rise by 14 percent from the previous year to 121.4 million bales, as nearly all significant producing countries saw increases. The United States, China, Turkey, Greece, Egypt, and Argentina rose more than 20 percent, while production in Mexico more than doubled. The increase in production was largely driven by higher area, with world 2017/18 area up 13 percent to 33.4 million hectares. The world average yield is forecast at 792 kg/hectare, up 1 percent from a year earlier and above the 5-year average of 764 kg.

India's 2017/18 production is estimated at 28.5 million bales, up 5.6 percent from the preceding year on much higher area, despite lower yields. Harvested area is estimated at 12.3 million hectares, up 13 percent from 2016/17, as favorable relative prices shifted land from alternative crops. India's 2017/18 yield is estimated at 504 kg/hectare, down 7 percent from the previous season as pest problems reduced what earlier appeared to be an even larger crop.

China's 2017/18 crop is estimated at 27.5 million bales, a 21-percent increase from last season. Production in the eastern cotton areas appears to have stabilized after nearly a decade of decline, while higher area and yields in the Xinjiang Autonomous Region push production there to a record level. China remains the world's second-largest producer, behind India. China's 2017/18 harvested area is estimated at 3.4 million hectares, 500,000 above 2016/17, while yield is expected to reach 1,761 kg/hectare, up 3.1 percent.

2017/18 China Supply and Demand

China Cotton Supply and Demand 2016/17 and 2017/18 est.

Unit 2016/17 2017/18

Beg. Stocks Production Imports Total supply Consumption Exports Total use Ending stocks Reserve stocks Stocks-to-use % of world stks

mil. bales

" " " " " " " " % "

58.2 22.8 5.0 86.0 37.5 0.1 37.6 48.4 29.5 128.9 55.2

48.4 27.5 5.0 80.9 40.0 0.1 40.1 40.9 18.0 102.0 46.2

Change (%)

-16.8 20.9 -0.6 -5.9 6.7 -18.0 6.6 -15.6 -38.9 -20.9 -16.3

With consumption exceeding production and imports only slightly above the WTO TRQ level, China is expected to continue to draw down its massive stocks for the third consecutive season in 2017/18. However, total stocks are expected to remain above use, and the projected stocks-to-use ratio of 102 percent is still well above historical levels. While sales from the State Reserve in 2017/18 are expected to be well below the 14.3-million-bale level seen in 2016/17, government stocks are expected to fall to the lowest level since a price support program backed by purchases for the National Reserve was introduced in 2011/12.

Higher cotton prices outside of China coupled with relatively stable internal prices have increased the competitiveness of China's textile industry. The shift in relative prices, coupled with ample available supplies, is supporting an expected 6.7-percent rate of consumption growth in 2017/18, just slightly below the 7.1-percent rate seen in 2016/17. Further supporting demand is the rapid growth of spinning capacity in Xinjiang, which continues to benefit from government support.

2017/18 World Consumption, Trade, Ending Stocks, and Prices

World cotton consumption in 2017/18 is expected to reach 120.5 million bales, a robust 5.0percent-growth rate, and the highest level since 2007/08. Consumption growth is forecast in all of the top-ten consuming countries, which account for 90 percent of total world use. Very strong growth is expected in Vietnam and Uzbekistan, up 18 and 12 percent, respectively. In addition to China, growth above 5 percent is expected in Bangladesh, Turkey, and Brazil in 2017/18.

World Cotton Supply and Demand 2016/17 and 2017/18 est.

Beg. Stocks Production Imports Total supply Consumption Exports Total use Ending stocks Stocks-to-consumption

Unit

mil. bales

" " " " " " " %

2016/17 2017/18

95.3 106.6 37.6 239.5 114.7 37.2 152.0 87.7 76.4

87.7 121.4 38.2 247.3 120.5 38.2 158.7 88.6 73.5

Change (%)

-8.1 13.9 1.7 3.2 5.0 2.7 4.4 1.0 -3.8

World trade is expected to increase to 38.2 million bales in 2017/18. Strong demand in importdependent countries, such as Vietnam and Bangladesh, is boosting their import demand and will more than offset lower imports by India. Significantly higher production in Turkey and Mexico has reduced their import demand. Very large carry-in stocks in Australia and Brazil, due to much larger crops in CY 2017, are leading to dramatically higher exports in 2017/18 for those countries. U.S. exports are expected to decline slightly, despite a much larger crop, as are exports by Uzbekistan, Turkmenistan, and Kazakhstan. Export by India are also expected to fall, but India's falling imports are expected to more than offset lower exports, as larger production there drives net exports higher.

With world production and consumption nearly balanced in 2017/18, world ending stocks are expected to rise only slightly. However, with the large decline in China's stocks, stocks outside of China will increase by over 20 percent or 8.5 million bales, the second largest increase on record. Stocks are expected to increase in all top-ten importers and exporters (other than China).

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