What is in this article?:
• China’s policies have driven world cotton market developments in 2012/13 and will continue to do so for the foreseeable future.
World cotton trade
World cotton trade is projected to total 36 million bales in 2013/14, 11 percent below the current season’s level, mainly reflecting the lower China imports. Exports by the United States and Brazil are expected to decline due to reduced supplies available for export.
World ending stocks are projected to rise 6.5 million bales to about 88.4 million, as global production exceeds consumption for the fourth consecutive season. However, China’s stocks are anticipated to rise by more than the increase in world stocks, due to continued accumulation of cotton in the state reserve, and the ending stocks-to-use ratio is projected at 145 percent.
Stocks in countries outside of China would fall relative to 2012/13 and would decline as a percentage of offtake.
These projections of world supply and demand, combined with the assumed China policies, indicate an A-index range of $.75-$.95 per pound.
The underlying world economic growth, China’s price support policies, and a modest tightening of world stocks outside of China are factors supporting prices. World cotton exports to China (assuming a 40-percent duty) will likely be competitive with the assumed China reserve release price at A-index levels in the mid- 80’s; this means that any surplus world supplies from countries outside of China probably could be sold there at prices similar to 2012/13.
At the same time, however, sharply lower prices projected for feed grains and oilseeds, which compete with cotton for area, could have a price- depressing impact.
The early USDA projection for 2013 U.S. cotton planted acreage is 10.0 million acres, a decrease of nearly 19 percent from last year, due mainly to lower cotton prices and relative net returns that favor shifts to alternative crops.
The projection is roughly equal to the level indicated by statistical analysis, but above the results of the recent National Cotton Council survey. The analysis quantifies the effects of relative crop prices and soil moisture conditions in the Southwest (where drought conditions generally favor cotton), based on U.S. area response for the 2002-2012 period.
The main variables are ratios of cotton to corn and soybean prices (using averages of fall futures prices for the February-March period preceding planting each year) and an index of soil moisture on the Texas High Plains as of June 1.
For 2013, soil moisture is projected to be below average but improved from the 2011 and 2012 drought years.
The National Cotton Council’s (NCC’s) survey forecast of 9.0 million acres was released on Feb. 9, reflecting responses received from mid-December through mid-January, when December 2013 futures prices were 3-4 cents below their mid-February levels.
Respondents to the NCC survey reported that the decreased cotton acreage in the Southeast and Delta will be replaced largely with corn and soybeans. The survey indicated that wheat acreage — along with corn and sorghum — is replacing cotton in the Southwest, while wheat and specialty crops increase at cotton’s expense in the West. USDA’s first survey of producer planting intentions— Prospective Plantings—will be conducted in early March and published on March 29, 2013.
Cotton plantings of 10.0 million acres are estimated to result in harvested acreage of 8.4 million acres. The projected U.S. harvested area is based on an abandonment rate of 16 percent, down from 2012’s 23.5 percent but above the long-run average.
National abandonment rates have been highly variable in recent years—ranging from 2.5 percent for the 2010 crop to a record of nearly 36 percent in 2011. Due to this variability, the 2013 abandonment is based on longer term, 10-year average abandonment rates by region.
With the Southwest expected to account for over half of U.S. cotton area again in 2013, crop conditions in this region will have a considerable impact on the U.S. crop.