Although Extra Long Staple (ELS) cotton represents only 3 percent of the cotton production worldwide, it represents 7 percent of the world market value and is the fastest growing segment of the cotton market, according to Terry Townsend, executive director of the International Advisory Committee.
California is the largest American Pima cotton producing state in the U.S. Next season more than 25 percent of the state's projected 850,000 acres of cotton will be in Pima, which is also grown in Arizona, New Mexico and Far West Texas.
These states produced a little more than 400,000 bales of ELS cotton last season; 350,000 bales were from California's San Joaquin Valley. California produced 135,000 acres of Pima in 2003, but that is expected to jump almost 80 percent to 240,000 acres this season.
Total world cotton production is expected to climb 9 percent in 2004/05 from 92 million up to 101 million bales. Consumption is not expected to change at 96 million bales. With China expected to lower imports next season, Townsend said the average Cotlook A Index is expected to fall from an estimated 71 cents for upland this season to about 60 cents per pound next season.
“Therefore, unless the premium for extra fine cotton over the A Index strengthens substantially, extra fine or ELS cotton prices are likely to decline this season,” predicted Townsend.
The extra-fine premium for American Pima is expected to narrow from the 90 percent it averaged above the A Index for the first half of this season.
Townsend said if it falls to 80 percent over the A Index average of 60 cents for upland, the 2004/05 average quote in Cotton Outlook for American Pima would be around $1.10.
Through Feb. 13 this season, the average quote has been $1.33.
World ELS production is forecast at 3.1 million bales next season, up about 600,000 bales from this season. However, consumption in producing countries is forecast to rise 1.7 million bales next season, up 100,000 bales. World exports of ELS cotton are estimated at 1.8 million bales next season, unchanged from this year. Ending stocks are estimated at 900,000 bales this season and 1.1 million bales next.
Use slide ends
An encouraging development in the ELS market is that the slide in total use that occurred in the first half of the'90s seems to have ended, said Townsend. “Even with the rise in average prices in 2003/04, total use of extra fine cotton remains higher than in the 1990s.”
Egypt is the biggest competitor of the U.S. in world exports. Towns said production there is estimated at 860,000 bales this season and 1.3 million bales next season.
The third largest ELS producer is China with 350,000 bales estimated in 2004/05, about 30,000 bales more than this season. This cotton is produced in Xinjiang where there are more than 7 million bales of cotton produced annually. Therefore, there is a big potential growth for ELS cotton there, but Townsend said “little is really known about the structure of production and agronomic conditions in Western China.”
Two consecutive seasons of relatively low Pima prices, supported by continued promotion efforts in the U.S. seem to have increased the underlying demand for extra long varieties. “Even in 2003/04 with the average quote for American Pima at $1.33, world exports are still expected to reach 1.9 million bales. Exports are forecast at about the same level again in 2004/05.
American Pima exports are estimated at 500,000 this year and about the same next season because the decline in beginning stocks will offset the rise in production, leaving the supply available for export from the U.S. about unchanged.
Egypt's exports this season are estimated at 530,000 bales and 550,000 bales next season.
Three-fourths of the world's ELS cotton exports are going to nine countries this season. Italy, India and Japan are the three largest destinations, accounting for 39 percent of total imports. Russia, Switzerland, Pakistan, Korea, Germany and Indonesia are the next largest destinations.