Gary Adams, the National Cotton Council’s vice-president, Economics and Policy Analysis, said U.S. cotton’s situation in 2007 will be shaped by a number of uncertainties and challenges, but there is some cause for optimism.

In presenting the NCC’s 2007 Economic Outlook to delegates at the organization’s annual meeting in Austin, Texas, Adams noted the recent improvements in U.S. yields. This was highlighted by U.S. cotton producers’ 2006 average of 819 pounds per harvested acre despite “less than ideal” weather across much of the Cotton Belt this past year.

That was the third highest U.S. yield average on record “providing further evidence that new varieties, better management, and the success of boll weevil eradication are contributing to better yields,” Adams said. “In spite of weather challenges, the (2006) crop of 21.7 million bales exceeded many pre-harvest expectations and also was the third largest on record after 2004 and 2005. Higher yields are also helping growers partially offset the negative impacts of higher fuel and energy costs.”

Another reason for optimism is growing demand for cotton. At the processing level, China continues to lead the way.

Adams said mill use in China has reached 50 million bales, fueled both by growing textile exports and increased retail demand by Chinese consumers. He noted that for 2007, China is projected to increase cotton imports as their production should fall due to lower area while mill consumption continues to grow.

Even under that scenario, Adams said that in the 2006-07 marketing year, all cotton exports from the United States are expected to drop sharply from the previous year’s level.

“At this point in the year, a best-case scenario is between 14 and 14.5 million bales,” Adams said.

Combining those exports with the projected five million bales of U.S. textile mill cotton consumption, results in total 2006-07 U.S. cotton offtake of 19.47 million bales — 3.9 million bales less than last year. That would leave ending U.S. stocks of more than eight million bales, the highest since 1985.

Looking to 2007-08, however, Adams said NCC sees U.S. exports recovering to 16.22 million bales. Even with increasing Asian textile imports resulting in a projected lowering of U.S. mill use to 4.52 million bales — 2007 U.S. offtake will increase to 20.74 million bales due to the higher export number.

Adams told NCC delegates that U.S. cotton understands the global fiber market’s competitive nature, but relying on international markets brings its own set of challenges. He noted the 2006 marketing year is the first of the post-Step 2 era, “and the impact on exports has been evident. Through mid-January, export commitments of upland cotton totaled roughly 6 million bales. This time a year ago, total commitments had surpassed 10 million bales.”

On a positive note, Adams said total world mill use of cotton will approach 121 million bales in the 2006 marketing year while solid economic performance will support further expansion in mill use to124 million bales in 2007.

“Barring exceptional yields, current prices of cotton relative to competing crops will not hold production at a level necessary to meet expected demand,” Adams said. “As a result, further declines in world stocks are projected in 2007.”

Adams said one of the critical questions surrounding the current outlook is the increased competition for available crop acres. Approaching the 2007 planting season, grain and soybean prices are trading 30 to 50 percent above year-ago levels, while cotton prices are largely unchanged.

In response to the price signals, Adams said respondents to the NCC acreage survey indicated plans to reduce U.S. cotton acreage by 2.1 million acres, or almost 14 percent. Upland area producers in the Southeast and the Mid-South intend to plant roughly 20 percent fewer cotton acres, while smaller declines are reported in the Southwest and Far West. Although upland acres in the Far West are declining, some of those acres will shift to extra long staple cotton as growers are expected to plant 11 percent more of the Pima cotton.

The final size of the U.S. crop ultimately will be determined by weather, Adams said. Assuming normal weather conditions, a U.S. crop between 20 and 21 million bales is very possible. If so, it would be in line with expected offtake, leaving little change in U.S. stocks by the end of the 2007 marketing year.

Adams also noted that although policy changes stemming from the upcoming farm bill debate or from the trade arena will not take effect in 2007, the current uncertainty surrounding U.S. farm policy only adds to the risk associated with making the long-term investments necessary to remain competitive.

In the meantime, Adams said U.S. cotton industry members must continue to be aggressive in: 1) improving production and controlling costs, 2) satisfying the customers’ fiber quality needs and 3) timely and efficient distribution of its raw cotton.

For additional details on the 2007 Cotton Economic Outlook, go to http://www.cotton.org/econ/reports/annual-outlook.cfm