U.S. cotton farmers face a large carryover from the 2006-2007 marketing year, reduced exports, static prices, and uncertainty from both WTO and a farm bill debate as they approach planting season.

But they also have reason for some optimism with increased world demand, an improving yield trend and potential for a better export market in 2008, according to Gary Adams, National Cotton Council vice president for economics and policy analysis.

Adams and other industry observers outlined expectations for the coming year during the recent NCC annual meeting in Austin.

Adams said cotton exports from the United States for the 2006-2007 marketing year will drop significantly from last year. “At this point, a best-case scenario is between 14 and 14.5 million bales,” he said. Adding that to a5 million-bales consumed by the U.S. textile mills results in a 19.47-million-bale offtake from the 2006-2007 crop, 3.9 million bales less than last year. Ending stocks could be more than 8 million bales, highest since 1985.

One reason for high carryover, Adams said, comes from a bit of good news. Despite less than ideal conditions, U.S. cotton farmers produced the third largest crop on record, lagging behind only 2004 and 2005.

Adams said better varieties, better management and success of the boll weevil eradication program contribute to grower success. Average yield for 2006 was 819 pounds per acre. High yields, Adams said, helped offset some of the near record production costs producers faced in 2006, primarily from energy for irrigation and increased fertilizer prices.

Adams said growing demand for cotton creates reason for optimism. China leads the way in increased processing, he said. Mill use in China has reached 50 million bales with increases in retail demand by Chinese consumers and growing textile exports.

Adams expects U.S. exports to rebound in 2007-2008. The council expects U.S. sales to get back to 16.22 million bales. Offtake in 2007 should increase to 20.74 million bales, even with more pressure from Asian imports that could lower U.S. mill use to 4.52 million bales.

Challenges

Relying on international markets for such a high percentage of the market comes with challenges in an increasingly competitive atmosphere, Adams said. The 2006 crop is the first of the post Step 2 era. “The impact on exports has been evident. Through mid-January, export commitments of upland cotton totals roughly 6 million bales. This time a year ago, total commitments had surpassed 10 million bales.”

World mill use of cotton will be near 121 million bales from the 2006 marketing year. Observers expect mill use will increase to 124 million bales in 2007.