More than 70 percent of the 2003 U.S. cotton crop likely will sell offshore, a good thing since domestic mill use continues a decline that has been persistent and disturbing since 1997.
Gary Adams, with the National Cotton Council Economic Policy Analysis division, offered a marketing outlook that's sobering and hopeful during the recent annual meeting of the American Cotton Producers and Cotton Foundation in Corpus Christi, Texas.
The promise comes from the export market that could take as many as 11.8 million bales from the 2003 crop.
“The opportunity for export remains at a relatively high level,” Adams said. And that follows a 2002 export market that's expected to close at around 11.6 million bales, according to USDA figures. “And that could push up a bit before the 2003 marketing year begins,” Adams said.
But domestic use remains troubling. “Since 1993, imports have accounted for three times more consumption that domestic mills.”
Domestic mill use expectations for 2003 stand at 6.8 million bales, down from 7.3 million last year, 7.7 in 2001, 8.9 in 2000 and down from 11.3 in 1997.
“We could see that drop to 6.5 million bales,” Adams said.
Meanwhile, estimates show consumption outside the United States at 92 million bales with production estimated at 78 million.
China will account for a large chunk of that estimated production and potential use. Adams said China is the largest producer and consumer of cotton. China's use trend and production are up but imports are down. He said estimates of production and use, however, point to a gap, “which suggests a 2.4-million to 2.5-million-bale potential for China to import.”
Adams said cotton stock levels declined in 2002, following a short crop. “We've seen some price recovery and may see further tightening into the 2003 marketing year.”
He said a 92-million to 93-million-bale production estimate and a 99-million-bale use estimate will leave a shortfall that will further deplete stocks.
Prices in similar shortfalls have moved higher than expectations for current crop prices, however. “In 2002, average farm price ranged from 42 cents per pound to 43 cents per pound,” Adams said. “Loan deficiency payment was 11 cents per pound. Now, the LDP is 2 cents to 3 cents per pound.”
For 2003 markets, Adams said the “A” Index would move into the 60 cent range. “It has been hard to move away from that level. There is a resistance to higher prices and we saw a little weakness in late July.
“The potential for higher prices, historically, should look good, with stocks tightening, but the upside potential is not where we would expect it to be. Man made fibers and imports are exerting greater influences than they did in the mid 1990s.”
He said the world price likely would not increase enough to affect counter cyclical payments for U.S. farmers for the 2003 crop. Prices currently at 43 cents to 45 cents per pound would have to jump to 52 cents to affect CCC payments for 2003, he said. That's a 10 cents per pound gap.
“We'll have to see a 7 cents per pound improvement before it affects the CCC,” he said.