After shattering records in several countries and the world in 2004, world cotton production is expected to decline nearly 14 million bales to 103 million bales in 2005, according to USDA projections.
Following on the heels of what has to be considered a phenomenal year for cotton production, a 14-million-bale decrease would be the largest decline ever and the largest percentage decline (12 percent) since 1992-93.
To say that the 2004 crop caught most analysts by surprise would be an understatement, said James Johnson, agricultural economist with USDA's Economics Research Service. Johnson delivered USDA's 2005 forecast for cotton at the annual Agricultural Outlook Forum in Arlington, Va.
“When I look back at what we were forecasting at this time last year — 103 million bales for the world and 18 million bales for the United States — it gives me some pause about making forecasts for this year,” said Johnson. “We all know now that world production actually reached 116.7 million bales and U.S., 23 million bales.”
Johnson said USDA estimates world consumption will rise 3 percent to 109 million bales in 2005-06, which could help reduce world cotton stocks by 12 percent to 41 million bales and the world stocks-to-use ratio to just under 38 percent.
USDA is prohibited by law from forecasting cotton prices, but the 38 percent stocks-to-use figure, which is well below the five-year average of 43.5 percent, would be considered bullish by some analysts.
Johnson said USDA believes world cotton acreage will decline in most countries in the Northern Hemisphere, due to lower cotton prices in 2004-05. Only Australia and Brazil, both in the Southern Hemisphere, are expected to increase cotton plantings in the 2005-06 marketing year.
Besides expecting lower prices to lead to fewer acres, USDA analysts also do not foresee a repeat of last year's record yields. “The largest expected reduction, the 4.3-million-bale decline expected in the United States is a case in point,” says Johnson. “U.S. cotton yields rose 16 percent to a record high in 2004-05 and are expected to decline about 17 percent, accounting for most of the expected decline in U.S. output.”
Yields in India, which also posted record cotton production in 2004-05, are predicted to be lower in 2005-06. India's farmers could plant 10 percent fewer acres and the Indian crop could decline by 3 million bales from last year's record 16 million bales.
“Substantial uncertainty remains about the size of India's 2004-05 crop, indicating the tentative nature of estimates for 2005-06,” says Johnson. “The introduction of genetically modified cotton and the surge of textile investment in India are helping drive substantial structural change in the way India's cotton is produced and distributed.”
He said India's cotton yields have been substantially above average for the past two years and are not expected to return to pre-2003/04 levels.
Although China produced a record crop of 29 million bales in 2004, Chinese yields were below average and are expected to increase only slightly in 2005, according to Johnson. Weather has dampened yields for the last two years and the impact of Bt adoption appears “to have run its course.
“Yields in 2004 rose substantially from the previous year's remarkably low level, but represented a setback from the previous trend,” he said. “Farmers reportedly intend to plant less area to cotton in eastern China in 2005-06, and even at the conservative of these expected reductions — and assuming no change in Xinjiang's area — China's total cotton area could fall about 12 percent.”
China total production is expected to fall only about 2 million bales, however, “as yields return to 2002-03 levels.”
Pakistan's cotton area could decrease by 200,000 hectares (almost 500,000 acres) to 3 million hectares (7.4 million acres) due to the lower world and local cotton prices, according to Johnson.
“Despite significant purchases by the government's Trading Corporation of Pakistan, cotton prices have fallen below the minimum support price,” he noted. “