If you're wondering why cotton prices have dropped so precipitously in recent days, you don't have to look much further than the forecast presented by USDA economists at the annual Outlook Conference in Arlington, Va.

Oh, the USDA numbers did not cause the severe price drop by themselves — certificated stocks and jitters over the national economy certainly contributed. But the Outlook Conference report may have been the straw that broke the back of the few remaining market bulls.

What the USDA report said basically was that there could be more cotton in the world in 2001/2002, possibly reversing a gradual stocks decline that had helped produce a bullish scenario in December and January.

“After falling for two years, foreign cotton area seems likely to rebound in 2001/2002, rising more than 1 million hectares (2.47 million acres), and returning to the 28-million-hectare level it averaged through the 1990s,” said Leslie Meyer, cotton analyst with USDA's Economic Research Service.

Meyer, one of a team of USDA economists who worked on the forecast, said they believe China, India, Uzbekistan, the Franc Zone of Africa and Brazil will account for much of the increase outside the United States.

(U.S. producers are expected to plant 16 million acres of cotton or 3 percent more than in 2000. Based on average yields and abandonment, that number could translate to a crop of 19 million bales or 10 percent above 2000. With beginning stocks of 4.5 million bales, total supplies in the U.S. could reach 23.5 million bales, the highest in 35 years.)

Meyer confirmed what many world cotton market observers have suspected; that is, the government of China's efforts to discourage cotton production have not been very successful.

“China's cotton prices have continued to drift upward during the 2000/01 marketing year (August-July) to date with widespread reports of private dealers procuring cotton outside of the Supply and Marketing Cooperatives system at prices well above last year,” said Meyer.

“Grain prices have improved as well, but official Chinese policy is still to discourage low quality grain production, and winter wheat area this year fell by 10 percent, based on various reports.”

Meyer said the availability of cotton containing the Bacillus thuringiensis gene appears to have contributed to large cotton area increases in eastern China in 2000, and further gains are expected in provinces that reduced acreage due to heavy bollworm infestations in the 1990s.

“Press reports from China have indicated that farmers are indeed planning to increase cotton area at the expense of grain in the east, and an increase in total national area seems likely,” he noted. “While it is difficult to forecast yet another year of record yields, the increased use of Bt cotton suggests that yields will remain near recent records.”

If that forecast is accurate, China's 2001 production would increase above the 20 million bales for 2000 that USDA forecast in late December. Up to that point, department economists had been projecting China's crop at 18 million bales.

Prices rising in India for the first time in three years could push production up by 1 million bales there, and a shortage of irrigation water in Pakistan could lead its farmers to switch more acres to cotton, said Meyer.

The economists expect a shortage of water to affect plantings in Uzbekistan, but a return to more normal yields and plans for a 15,000-hectare increase in planting could result in a larger crop. Rising prices could also lead producers in French zone of Africa to increase their plantings in 2001.

In Brazil, producers in the state of Mato Grosso likely will continue to expand acreage, increasing both the country's area and national average yield and bringing production closer to the 4 million bales last seen in the mid-1980s. If weather in one and irrigation supplies in the other permit, farmers in Argentina and Australia are expected to increase their acreage.

“The improvement in prices that began in November 1999, (albeit with occasional setbacks) is expected to increase efforts to produce cotton across a variety of smaller countries, as well,” said Meyer. “It is difficult to forecast any significant declines to offset the increases expected in the larger countries.

“Industry reports from Turkey suggest lower area there is possible following that country's economic crisis and proposed lower government payments, but it remains to be seen if Turkey, in fact, will reduce its production for the third consecutive year.” (Turkey devalued its currency the day the Outlook Conference began on Feb. 22.)

With world Gross Domestic Product or GDP growth expected to reach 3.1 and 3.6 percent in 2001 and 2002, Meyer said world mill use in 2001/2002 is expected to hit record levels for the third consecutive year for the first time since the late 1980s.

Chinese textile mills could account for more than half the gain in foreign consumption, with an increase of more than 2 percent to 23.5 million bales. The economists expect growth in Russia to continue its momentum resulting from higher oil prices and improvements in exchange rates.

But more restrained growth will occur in Brazil, India, Mexico, Pakistan and Turkey, countries which have been showing sizable increases in recent years.

The net effect of the changes is likely to be a wash — unless good weather conditions help increase production significantly in any of the world's producing regions.

“With world production in 2001/2002 expected to reach the level of consumption for the first time in four years, world ending stocks are forecast unchanged at 37.3 million bales, remaining at their lowest level since 1995/96,” said Meyer.

“A projected increase in U.S. stocks is forecast to nearly offset a reduction of 1 million bales in China's stocks, implying only marginal gains in other foreign countries' stocks in 2001/02.”

E-mail: forrest_laws@intertec.com