In recent years, relative crop prices have significantly reduced cotton plantings, while the economic slowdown is having an adverse effect on disappearance — and unfortunately, says Gary Adams, projections by the National Cotton Council for 2009 don't indicate any improvement.
Also, says Adams, who is vice-president for economics and policy analysis for the NCC, “We're really concerned that as we get toward the end of this year, if there is no improvement in the general economy, the 2010 outlook for demand may show little, if any, recovery.”
“But, we're hopeful we may be seeing a bottom, and USDA's demand numbers are a bit more optimistic,” he said at the annual joint meeting of the Mississippi Boll Weevil Management Corporation and the Mississippi Farm Bureau's Cotton Policy Committee.
A lot of factors outside the market are affecting cotton, says Adams, most notably the overall economy, but also what's happening with other commodities — “as other prices have fallen, that has put pressure on cotton prices.”
Worries about inflation continue, he says, “But historically, inflation tends to be bullish for cotton prices. The value of the dollar is also a factor. Cotton is traded on world markets in dollars; if the dollar goes up or down, that's reflected in cotton's price. The general expectation is for a weak dollar ahead, which could be a bullish factor for cotton.”
USDA is forecasting approximately 13 million bales of U.S. cotton production this year off 9 million acres; that's almost 1 million more acres than indicated in the National Cotton Council's January survey.
“Factors that could have an impact on that outlook,” Adams says, “are the lateness of much of the Mid-South and Southeast crop, the drought in south Texas, and whether the High Plains gets needed rains. We see a potential for 13 million bales of production, plus or minus 1 million, depending on weather from now until harvest.”
“We're projecting U.S. textile mill use of 3.5 million bales and we've plugged in 11 million bales for exports — not quite as high as 2008. Exports, projected at slightly over 13 million bales for the 2008 marketing year — a bit better than expected — are continuing strong and U.S. stocks are declining, with 6 million bales forecast at year's end, 4 million below last year. But world stocks aren't projected to fall much, with 62 million bales forecast at the end of the marketing year July 31.
“So much of the cotton outlook will hinge on China,” Adams says. “They're expected to harvest 2 million bales less than last year, with 34 million bales of production and textile mill consumption of 46 million bales. At some point, they're going to need cotton, and we think they will import more than they did last year.
“India is holding a lot of cotton in government stocks. They're forecast to export 1 million to 2 million bales in the 2008 marketing year, but they have potential to go as high as 6 million to 7 million bales in the 2009 marketing year. So, what India does can have an impact on price and U.S. exports.
“We've seen some strength in cotton prices recently, but by and large trading has been in a sideways pattern. Demand is a key bearish factor — we just don't know how long the economic downturn will continue. We feel we'll see cotton stocks decline in the 2009 marketing year, and that's positive for price as the market realizes the tighter situation.”
Cottonseed prices will generally be affected by what other oilseed prices do, Adams says. “We're still seeing cottonseed price supported by corn and oilseed markets. We've come through a couple of years with large cotton stocks, but essentially no stocks of cottonseed.
“In the last couple of years, the price of cottonseed has gone from $100 a ton to more than $300 a ton. Current price levels in the $150 to $200 per ton range appear reasonable, given expectations for soybean prices.”
Looking at issues, Adams says Brazil's complaint against U.S. cotton with the World Trade Organization is still in the arbitration phase.
“They're asking for $2.5 billion in damages and cross-retaliation, which could involve pharmaceuticals, the entertainment industry, and other business groups.
“The U.S. position is that damages amount to less than $30 million. We're concerned that the case doesn't reflect current cotton market conditions and policy, but rather is focused on the 2002-05 period. This is an ongoing challenge for U.S. cotton.” A decision may come mid-August.
“We have several concerns about these talks. The current text does not contain an appropriate balance between market access and domestic supports, and has other language unacceptable to U.S. cotton.”
China, the world's largest producer of cotton, and the largest consumer and largest importer of U.S. cotton, is “now usually buying more of our cotton than the American textile industry,” Adams says.