China, the world’s top cotton grower, is projected to produce 33.0 million bales in 2013/14, down 3 percent (1.0 million bales) from a year ago. Despite the government’s generous cotton price support program, cotton growers in eastern China face rising production costs, especially for labor, and are expected to shift production to less labor-intensive and more profitable alternatives.

However, planted area in the high-yielding Xinjiang Autonomous Region continues to expand, raising the national yield and partially offsetting reductions in the eastern provinces. China’s 2013/14 harvested area is projected at 5.0 million hectares, a 5-percent reduction from the previous year.

Australia’s 2013/14 production is projected to decline 17 percent from a year ago, to 3.5 million bales due to a weaker market price for cotton and declining reservoir supplies for irrigation.

Australia’s 2013/14 area harvested is projected at 375,000 hectares, down 16 percent from a year earlier and the lowest in four years.

Brazil’s 2013/14 crop is projected at 7.5 million bales, up 1.0 million from the previous year, as continued investment in cotton infrastructure and lower prices for competing crops support cotton production.

The states of Mato Grosso and Bahia are expected to account for more than 75 percent of the 2013/14 crop. Brazil’s 2013/14 harvested cotton area is projected at 1.15 million hectares, 15 percent above 2012/13, while the yield is projected to remain about the same.

India, the world’s second largest cotton grower, is projected to produce 26.0 million bales in 2013/14, a 2-percent increase from the previous year. While planted area is expected to decline slightly, recovery in yields from 2012 is expected to support production.

Pakistan’s 2013/14 production is projected to increase 4 percent to 10.0 million bales. The projected increase in output is mainly due to a yield rebound. Pakistan’s 2013/14 harvested area is projected at 3.0 million hectares, unchanged from the preceding year.

World cotton consumption is projected to rise 2.6 percent to 109 million bales in 2013/14, stimulated by growth in world GDP, which is expected to accelerate slightly in calendar 2013 and again in 2014, according to the International Monetary Fund.

The projected global consumption level is 12 percent below the peaks of 2006/07 and 2007/08, despite population and income growth, as cotton has regained only a fraction of the market share lost to synthetic fibers as a result of high prices of 2010/11 and 2011/12.

Recent data on textile imports into the United States, historically the world’s largest retail consumer of textiles, show only a marginal recovery for cotton’s fiber share from a year-ago level, remaining well below recent years.

Although world cotton prices have declined, China’s domestic price support policies have encouraged the use of polyester in preference to cotton by the world’s largest yarn spinner.

China’s cotton consumption is projected to decline 4 percent in 2013/14, reflecting a cumulative loss of nearly one-third over the past four seasons. Offsetting the decline in China is a projected 6-percent increase for the rest of the world.

With China forecast to hold more than half of world cotton stocks at the beginning of 2013/14, the world cotton outlook is highly dependent upon China’s government policies affecting the domestic support price, import quotas, and release of cotton from the state reserve.

As of mid- February, China’s government has given every indication that it intends to continue its support program for farmers; therefore, the estimates in this paper assume a continuation of domestic support and purchase at the 2012-crop price of 20,400 RMB/ton ($1.48/lb.). It is also assumed that officials in China desire to limit imports in favor of selling a portion of the domestic stocks accumulated in the national reserve.

It is important to note that these suppositions about policy are highly tentative and are subject to sudden and significant revisions, should decision-makers in China decide to pursue alternative price objectives or program delivery mechanisms. Different policy assumptions would materially alter the world cotton market outlook.

China’s 2013/14 imports are projected at 8.0 million bales, 43 percent below the current estimate for 2012/13, and the lowest in 5 years. China’s imports in 2013/14 will be a function of the exportable supply available from the rest of the world and the type and amounts of quota that China’s government allocates to mills.

The minimum China import level would be roughly 4.0 million bales that would fill the low-duty quota set by its WTO commitments. Imports of an additional 4.0 million bales would include sliding scale quota plus any imports by the China National Cotton Reserve Corporation (CNCRC). China’s mills could also import cotton under the 40-percent out-of-quota tariff, for which the break-even price relative to domestic supplies, if sold from the state reserve at 19,000 RMB/ton ($1.38/lb.), would be an A-index of about 88 cents.

The sharp reduction in China’s projected imports for 2013/14 reflects: (1) an assumption that China’s policies will limit imports in order to facilitate release of reserves at the relatively high price of 19,000 RMB/ton; and (2) a reduction in exportable supplies from countries outside of China.