Cold weather has a way of driving visitors to the nation's capital indoors, and the weekend after USDA held its annual Agricultural Outlook Forum across the Potomac River in Arlington, Va., was no exception.
With the temperatures barely rising out of the teens, thousands of people clad in blue jeans and cotton sweatshirts and T-shirts and fleece-lined coats and jackets flocked into the National Gallery of Art to see the Cezanne exhibit or gazed at the massive rockets and lunar modules at the National Air and Space Museum.
Watching the crowds, you could imagine that a good portion of the 7.5 percent increase in world cotton consumption — to 117 million bales — that USDA economists are forecasting for 2005-06 could be found in the Smithsonian museums.
That's not true, of course, but, multiplying all the “cotton-rich” fabrics in those rooms across those in thousands of other cities and towns across America would give you some idea of what's happening in the world textile and apparel market.
“U.S. end-use of cotton-containing products is expected to increase at an above-average rate in 2005-06 as the relaxation of textile trade barriers has reduced the cost of clothing and other products,” says Carol Skelly, fibers analyst for USDA's World Agricultural Outlook Board.
Skelly says the lower cost of textile and apparel products, and the improving economy, helped push U.S. per capita cotton consumption to an estimated 37.5 pounds in 2005, a 2.5-pound or 7 percent increase from 2004.
USDA's Interagency Cotton Estimates Committee, which Skelly chairs, does not believe cotton usage will continue to expand at that rate in the new marketing year that begins Aug. 1. But the projected 5 percent increase — to 122.5 million bales — should still be enough to make the cotton market take notice.
Economy aids use
“Continued robust economic growth worldwide and favorable relative fiber prices are expected to account for a third consecutive year of extraordinary consumption growth,” she said while giving the Forum's annual USDA Cotton Outlook. (The latter represents the combined thinking of five USDA economists who specialize in cotton.)
That 5 percent or 5.5-million-bale increase in world cotton consumption would still be above the long-run average of 1.7 percent, but it would also be the slowest in three years, she said.
The economists say a slight easing in the growth of economic activity, particularly in developing countries, and adjustments from shifting relative fiber prices and the end of the multi-fiber arrangement quotas — and new import agreements with China — will contribute to the slowdown.
They say Chinese mill use, which has been feeding much of the rise in world consumption, is expected to grow 10 percent in 2006-07, more than double the world rate but less than half the increase China achieved in the 2004-05 marketing year.
“Current trends in China's total yarn output support the forecast of slowing gains in mill use,” Skelly says. “After running at a 10 percent annual growth rate at the beginning of calendar 2004, and rising to 25 percent growth during the first half of calendar 2005, year-on-year gains in China's monthly yarn output have slowed to below 20 percent in recent months.
“As textile trade patterns stabilize during 2006 and 2007, growth in yarn production also will continue stabilizing, helping slow China's gains in cotton mill use.”
The new “safeguard” agreements China signed with the European Union and the United States in 2005 also will constrain China's textile export growth, she said. But, at the same time, sourcing of yarn, fabric and apparel from China through countries not subject to those agreements will help offset some of the constraints.”
The economists say consumption growth is likely to slow in India and Pakistan during 2006-07, although the limits on China's textile exports to the United States and the European Union could give South Asian exporters greater opportunities.
“For example, India's cotton textile exports to the United States accelerated after July 2005 as China's lost momentum,” said Skelly. “However, income growth in both India and Pakistan is expected to decelerate in 2006 and 2007 from extraordinarily high levels in 2005. The pace of substitution of cotton for chemical fibers in South Asian yarn output also is likely to slow.”
Low cotton prices relative to polyester also have been a factor in the 7.5 percent increase in world cotton consumption estimated for 2005-06, according to Skelly.
During 2004-05, the cotton/polyester price ratio dropped to its lowest level in about a decade as polyester prices continued an upward trend that began during 2002 while cotton prices fell.
Cotton prices have tended to rise since the middle of 2004-05, but polyester prices have also continued rising, in part bolstered by petroleum prices. “As of January 2006, the cotton/polyester ratio had been 20 to 30 percent below its long-run average for 18 months, a sustained discount for cotton not seen since 1993,” said Skelly.
“As a result, chemical fiber production has stagnated or declined in a number of countries, and cotton's share of end-use consumption has at least stabilized, if not increased, in some of those.”
As Skelly acknowledged, all the increased demand for cotton in China would have gone for naught if world production hadn't reached record levels in 2004-05, including in the United States, which turned around and produced a new record crop in 2005-06.
World cotton area declined by about 1 million hectares (2.47 million acres) in 2005-06 or about 2.7 percent below 2004-05's 34.8 million hectares or 86 million acres. But the decrease was less than initially forecast given that average cotton prices declined 23 percent from the 2004-05 highs and prices of alternative crops were also lower.
With record yields in many countries also helping to offset the decrease in plantings, world production in 2005-06 decreased only 6.6 million bales or 5.5 percent to an estimated 113.8 million, which was still the second largest crop on record (compared to 120.4 million bales in 2004-05).
“Weather across the Northern Hemisphere generally returned to a more normal pattern with the exception of erratic monsoon rains in India and heavy rainfall in parts of China,” said Skelly. “With generally normal weather, world average yields were down 3 percent from the previous year's record, but higher than a few years ago. The increased use of improved seed technologies, particularly Bt cottonseed, is boosting world average yields.”
World output gain
USDA's preliminary forecasts call for another increase in production in the 2005-06 marketing year with the world crop expected to reach 117 million bales or 3 million or 2.9 percent higher than in 2005-06.
China's cotton producers could increase plantings and yield in 2006-07 because of a 20 percent to 25 percent increase in local cotton prices during the procurement season. With corn prices remaining relatively stable, USDA analysts believe the cotton area could rise by several hundred thousand hectares.
Higher area and yields are also possible in India and Pakistan due in part to the continued spread of Bt cotton varieties and higher prices, especially in India where the government has made heavy intervention purchases to maintain minimum support prices.
USDA analysts do not believe U.S. growers can produce a third record crop after the 23.3-million- and 23.7-million-bale crops of 2004-05 and 2005-06.
Skelly says USDA agrees with the National Cotton Council's annual acreage survey of 14.44 million acres for the 2006 crop. But the currently historically dry conditions in much of the Southwest are casting doubt on whether 2006 will bring another record.
As of Feb. 1, soil moisture in Lubbock was the lowest in more than 30 years, according to Skelly. Farmers on the High Plains could still receive needed rainfall prior to the normal planting time in May, but the odds are not good.
“Analysis of data since 1980 indicates that, for the seven driest years, the Texas yield per planted acre exceeded the trend three times and fell below the trend four times,” says Skelly. “Given average conditions, the national yield in 2006 is forecast to decline from the two best yields on record.
“With USDA's assumptions of more normal weather and crop conditions in 2006, the U.S. average yield is projected at 770 pounds per harvested acre, below the 10-year trend but equal to the average over the last four crop years.”
Based on those assumptions, she said, U.S. cotton production in 2006 would total 21 million bales, with a range around the estimate between 20.5 million and 21.5 million bales.
Despite the potential decline, and given the current beginning stocks estimate of 7 million bales, U.S. cotton supply in 2006-07 would total about 28 million bales, “remaining one of the largest of the past four decades,” says Skelly.