With the Southwest accounting for over half of U.S. cotton area, crop conditions in this region have a considerable impact on the U.S. crop.

The NOAA mid-February forecast of the seasonal drought outlook indicates the persistent drought in the Southwest will continue through the end of May. As a result, the projected U.S. harvested area is based on above-average abandonment of 20 percent.

USDA is forecasting a national average yield of 777 pounds per harvested acre, based on the most recent 3-year regional averages.

U.S. 2012 crop production is projected at 17 million bales, about 8 percent above 2011.

With carry-in stocks at 3.8 million bales, total supply for 2012/13 — 20.8 million bales — would increase 14 percent from 2011/12.

U.S. domestic mill use is projected at 3.5 million bales, unchanged from 2011/12.

In recent years, U.S. cotton mill use has been sustained mostly by semi-processed textile and apparel exports — mainly to Mexico and the CBI countries — that are finished and shipped back to the U.S. market.

High cotton prices, relative to manmade fiber prices, during the past year have resulted in fiber substitution at the mill. The return of “normal” fiber shares will take some time to achieve and may constrain cotton use in 2012/13.

U.S. cotton exports are projected at 12 million bales in 2012/13, an increase of 9 percent, as additional supplies are available.

While foreign import demand is expected to rise to its highest level in 5 seasons, the United States will also face increased competition. These projections show the U.S. share of global trade increasing to about 31 percent, still the second-lowest since 2000/01.

Projected ending stocks of 5.3 million bales would rise 1.5 million from the beginning level, constituting about 34 percent of total disappearance, 4 percentage points above the 5-year average.

With plentiful U.S. and world stocks, U.S. producer prices are likely to decline from those of last season.

The 2012/13 marketing year average price received by cotton producers is projected at 80 cents per pound, about 11 percent below the 2011/12 estimate.

The estimated 2011/12 farm price of 90 cents per pound includes higher-priced cotton contracted in the spring and summer of 2011.

With early February prices for December 2012 futures above 90 cents per pound, U.S. producers may have a similar pricing advantage for 2012/13, partially mitigating a potentially larger season decline in the A-index.