Foreign cotton production should again fall short of foreign consumption in 2003-04, creating export opportunities for U.S. cotton producers. But U.S. prices must remain competitive for growers to take advantage of the shortfall, according to market analyst Jarral Neeper.
Neeper told attendees at the 16th annual Engineered Fiber Selection Conference in Greenville, S.C., that world stocks — which are already down almost 10 million bales from a year ago — should drop another 2 million to 3 million bales at the end of this year.
U.S. stocks are down 1.3 million bales and should continue to drop into 2003-04, says Neeper, assistant vice president, economics and call pool operations, for Bakersfield, Calif.-based Calcot, Ltd.
Falling world stocks come on the heels of lower world production in 2002. USDA is projecting that world production will bounce back in 2003-04, to about 96.5 million bales. That's a little optimistic, according to Neeper, who is forecasting a 94.8-million-bale world crop for 2003-04.
One reason, “USDA's foreign cotton production figure is based on record yield projections,” Neeper explained. “I do believe that Chinese production will be up about 4 million bales from last year, to around 26.5 million bales. But I don't think we'll see record yields in overall foreign production. We've seen bad weather in Uzbekistan. It's been cold and wet in the Xinjiang Province of China. It's been dry in Australia, and Egypt has gotten off to a poor start.”
Bright spots for world production include Pakistan, India and Turkey, “which are all off to good starts.” Neeper projects that world consumption for 2003-04 will not change much from the 2002-03 marketing year, when the world consumed 97.8 million bales. His estimate is a little lower than USDA's projection for 2003-04 of 99 million bales.
Nonetheless, Neeper believes that USDA's forecast of China's cotton consumption is low at 28.5 million bales. “I think it will be at 30 million bales.”
The bottom line for all those following world fundamentals is that world stocks are coming down, to the tune of 34 million to 34.5 million bales of ending stocks at the end of 2003. “That's the lowest since 1994,” Neeper said. “The stocks-to-use ratio of about 35 percent will be the lowest since the 1993 crop year.”
According to Neeper, another important fundamental is that in 2002, foreign consumers consumed 19.4 million bales more than they produced — which is creating the opportunity for increased U.S. exports. In the new crop year, the deficit will come in at around 12.5 million bales.
So it looks like another year of mushrooming exports is very possible. “This year didn't start out looking as good as last year. But it's gotten better and better. Right now, we're about 100,000 bales above a year ago in shipments and about 250,000 bales ahead in sales.”
Neeper believes that U.S. production for the coming year will be close to 17.2 million bales, which is unchanged from 2002-03. “I believe the Southeast will be up 900,000 bales, Memphis Territory, will be down 600,000 bales, the Southwest will be up 200,000 bales, while the Far West will be down 500,000 bales.
“So everything west of Texas will be down 500,000 bales and everything east of Texas will be up 500,000 bales, leaving everything unchanged from a year ago.”
Neeper noted that cold, wet weather in the Far West is expected to curtail yield significantly in the region. “I think we're going to be above 1,115 pounds, maybe a little better that 1,200 pounds.
“Also, there's not going to be a lot of ELS cotton out there. We just didn't get a lot planted. Last year, the San Joaquin Valley planted around 215,000 acres. The best estimates this year are 130,000 acres to 140,000 acres of Pima. We're estimating a total ELS crop this year of around 350,000 bales to 400,000 bales. Our total offtake is estimated at around 700,000 bales. We could end up with virtually no ELS cotton at the end of the 2003 crop year.”
USDA's projection of 18.8 million bales in U.S. total offtake for the new crop year, which is the largest since 1997, “is a little high,” Neeper said. “My export number is 10.8 million bales. Consumption is 7.1 million bales for a total of 17.9 million bales in offtake. That's still a very good number and indicative that we are going to draw down stocks in the United States.”
Neeper projects U.S. ending stocks of around 5.3 million to 5.4 million bales, compared to USDA's figure of 4.7 million bales. “I'm not as optimistic as USDA, but certainly we're better than the 7.5 million bales we saw two years ago. We still have a very tight stocks-to-use ratio of about 25 percent, the lowest since 1999.”
All this means prices should be a little better, according to Neeper. “How much better is hard to say. Our economy is still iffy. We have problems in Europe. Japan is still hurting. Polyester prices are still competitive. And the dollar still needs to move lower.
Neeper says based on lower projected ending stocks, a large projected exportable supply and the need to be price competitive to meet export projections, “New York should trade at a fairly healthy discount to world prices — an average of about 5 cents.”
That could project to an average nearby futures price of between 55 cents and 75 cents, with an overall average for the crop year of 64 cents to 66 cents, according to Neeper.