Gary Adams, the NCC’s vice president, economics and policy analysis, says the demand base for U.S. raw cotton continues to face "very serious" challenges, and with more than half of U.S. raw cotton moving into the world market, increased access and sales to international markets will be even more crucial to the industry’s health.
Adams, speaking at the council’s annual meeting in Tampa, said a more export-oriented U.S. raw cotton sector will be greatly affected by shifts in global supply and demand. The increased emphasis on exports has been necessary as the domestic textile industry contracted under severe pressure from increased textile imports.
Maintaining domestic mill use also will be important to preserving U.S. cotton’s demand base.
For 2003, the NCC projects U.S. growers will produce a 17.1-million-bale cotton crop, domestic mill use will fall to 7.3 million bales and U.S. exports could reach 10.7 million bales – if China continues to be a net importer of raw cotton.
"China remains the wild card in world markets due to the sheer size of their market and unpredictability of their net trade position," Adams said. "Lower production and increased consumption have led to a drawdown in their stocks as well as increased imports during the current marketing year."
For the 2003-04 crop year, he expects China’s production will again fall short of consumption, leading to continued imports. However, it should be noted that these imports are based on need and do not reflect changes in their willingness to abide by the commitments associated with World Trade Organization (WTO) accession.
"The U.S. must continue to push China to correct its implementation of tariff rate quotas under their WTO accession agreement, and to oppose barriers erected due to arbitrary quality tests," Adams said.
Based on that production and offtake estimate, the NCC believes U.S. projected stocks on July 31, 2004 would be 5.4 million bales with a corresponding stocks-to-use ratio of 30 percent.
NCC economists pegged world cotton production for 2003-04 at 94 million bales, with the bulk of the increase from the 2002-03 level of 87.4 million bales occurring in China and Australia. With world mill use projected to grow to 97.1 million bales, ending world stocks July 31, 2004, would decline to 35.0 million bales and the world stocks-to-use ratio would decline to 36 percent.
Adams noted that world mill use has finally shown some strength in the last two years after several years of remaining flat. However, the growth is concentrated in a handful of countries such as China, Pakistan and Turkey. Also, the extremely low cotton prices that prevailed during 2001 and much of 2002 helped fuel the growth. Man-made fibers remain a growing source of competition with world consumption approaching 160 million bales in 2003.
Adams reminded NCC delegates that the U.S. textile industry continues to struggle against surging imports of cotton textile products into the U.S.
"For calendar 2002, cotton product imports surpassed 17 million bales," he said. "While NAFTA and CBI countries are still significant suppliers of those products, China emerged to grab a larger share. Much of China’s growth occurred in categories in which quotas were eliminated on Jan. 1, 2002. Further growth in imports is expected in 2003, and as a result, domestic mill use will decline further."
NCC also announced the results of the NCC’s 20th Annual Early Season Planting Intentions Survey – total U.S. upland cotton plantings of 13.86 million acres, an increase of 1.1 percent from 2002 plantings of 13.72 million acres. The survey revealed extra long staple (ELS) intentions of 184,000 acres, which would be a 24.7 percent decline from 2002. With average abandonment, total upland and ELS harvested area would be about 12.70 million acres. Applying each state’s average yield to its 2003 projected harvested acres generates a crop of 17.1 million bales - 16.6 million bales of upland cotton and 453,000 bales of ELS cotton. This compares to 2002’s total production of 17.14 million bales, according to USDA’s January 2003 estimate. Cottonseed production for 2003 is projected at 6.4 million tons, almost unchanged from the previous year.
ELS not surprising
Adams noted that while upland cotton prices were stronger than year-earlier levels, there was also increased competition from higher grain prices. He said the decline in ELS acreage is not surprising given the current pressure on prices.
According to Adams, the NCC’s forecast of 14.05 million acres is generally in line with industry expectations. Based on survey results, the Mid-South and the Southwest show the largest increases with plantings up 3.3 percent and 3.2 percent, respectively. A decrease of 5.0 percent is indicated for the Southeast, which may reflect some pessimism and financial stress in a region that suffered through one of the worst droughts in history. Upland acreage in the West is up 1.1 percent.