A USDA economist projects lower U.S. cotton acreage, smaller world production, higher world consumption and U.S. exports of 10 million to 11 million bales in the coming marketing year.
While the forecast is somewhat bullish, Carol Skelly, with USDA's World Agricultural Outlook Board, noted that U.S. cotton stocks will still be very burdensome by the time the 2002 harvest rolls around.
Skelly prefaced her remarks — at the 2002 Beltwide Cotton Conference in Atlanta — with the observation that this time last year, forecasters did not do a very good job of predicting the circumstances that would eventually lead to historically low cotton prices.
“At this early date, all we can give you (for 2002/03) is a framework in which to monitor and interpret events as they unfold.”
The economist made five predictions for the 2002/03 marketing year. The forecast assumes normal weather and growing conditions and is based on an economic turnaround beginning in mid-2002 and accelerating into 2003. Assumptions are also based on a continuation of the current U.S. farm program for the 2002 crop.
1. World production will decline by about 8 million bales, including about 3.5 million bales in China, 2.5 million bales in the United States and about 2 million bales (net) in other countries.
Skelly said that world production is forecast to decline to about 88.5 million bales, from 96.6 million bales this season. China will account for about 3.5 million bales of this reduction, producing about 21 million bales. The 30-percent decline in China's internal cotton price during 2001 is likely to discourage cotton area in the spring of 2002.
U.S. acres drop
In the United States, area will decline to a range of 14.5 million to 15 million acres, due to a variety of factors. Foremost, relative to a year ago, cotton prices are lower compared with corn and soybeans. Producers also face a sharply lower crop insurance election price. And a return to normal weather conditions from last year's excellent planting weather is likely to reduce area devoted to cotton. With normal yields, production would fall to 17.5 million to 18 million bales.
2. World consumption will rise 1.5 percent to 2 percent in 2002/03, due to economic recovery and the lingering effects of current low cotton prices.
“Our macroeconomic forecasts indicate world GDP growth relatively flat at 1.2 percent in calendar 2002, rising to about 3.5 percent in 2002,” Skelly said. “Consumption in the 2002/03 marketing year will benefit both from a worldwide economic recovery and from the accumulation of cotton purchases made at below-average prices. Our preliminary world consumption forecast is 93.5 million bales.”
3. With lower production, rising consumption and large tariff rate quotas (TRQs) under the World Trade Organization, China's net imports could reach 2 million bales or more.
China net importer?
China is likely to be a net importer on a larger scale in 2002/03, owing to reduced production and continued growth in consumption, according to Skelly. “Under the new TRQ system, the government of China will no longer have the right to restrict imports, as it has in recent years. Our preliminary estimate of China's net imports is about 2 million bales. Even with imports at this level, China's stocks are likely to decline.”
4. U.S. mill use will remain in the 7.5-million- to 8-million-bale range.
Economic recovery is likely to promote growth in retail use of cotton, after two years of decline, Skelly says. However, growth in textile trade will continue to diminish the market share of U.S. mills.
5. U.S. exports will be large and are likely to exceed this year's 9.8 million bales.
“This year's exports have been boosted by surplus supplies and competitive pricing under the marketing loan program, both factors which, thanks to large stocks, are likely to be present again next season,” Skelly said.
Sales window opens
In addition, lower foreign production and higher foreign consumption will expand the window of opportunity for U.S. cottons sales, especially if China becomes a significant importer. And early-season competitiveness is likely to be enhanced by large quantities of 2001-crop cotton held in the CCC loan, which will expire early in the fall of 2002.
“Our preliminary range for 2002/03 U.S. exports is 10 to 11 million bales.”
Skelly noted that while the predictions are bullish, “if we evaluate the effect on the U.S. balance sheet, we see that they are not sufficient to eliminate U.S. supply stocks by the end of 2002/03.”
“At the mid-point of the U.S. forecast ranges, stocks would fall to about 8 million bales, or just under 45 percent of total use. Taking the most optimistic approach of combining the minimum estimates for production and the maximum estimates for offtake results in a stocks reduction of about 1.5 million bales, to about 7 million bales, about 35 percent of use.
“Put another way, the reductions in production and increases in offtake projected are not sufficient to liquidate very large stocks. Returning stocks to an equilibrium level — which would be less that 30 percent of total use — would require lower production or larger mill use and exports than we are now forecasting.”
The world balance sheet fares better, due to its more significant reductions in supply. World stocks are forecast to fall to 39 million bales, down 12 percent from last year. The world has held stocks above 41 million in four of the past five years, but China carried large surpluses in the first three of these years. The U.S. share of world stocks has risen as China's has declined. Based on these projections, nearly 20 percent of world stocks would be held in the United States again at the end of 2002/03.