World Cotton Stocks Rising to Record
The latest U.S. Department of Agriculture (USDA) estimates for 2012/13 project that global cotton stocks are expected to reach a new record at 74.7 million bales, 10 percent above 2011/12. Stocks have risen as a result of: 1) the recent record cotton prices that encouraged cotton production but reduced mill demand for the fiber; and 2) China’s cotton policies that are supporting domestic prices above world market clearing levels.
While global cotton stocks will increase for the third consecutive season, the stock growth has largely occurred in China (fig. 1). In 2010/11, China’s 23-percent share of world stocks was its lowest in two decades, and extensive purchases to rebuild its national reserve began. By the end of 2012/13, China’s share is projected to double to 46 percent, nearly matching the share of stocks held by all other foreign countries combined. A policy change by China’s Government will be needed to make these stocks available to the market.
2012 U.S. Cotton Crop Forecast Up in August
According to USDA’s first survey-based forecast, U.S. cotton production in 2012 is projected at 17.65 million bales, 651,000 bales above July’s estimate and nearly 2.1 million bales above last season’s crop. The 2012 production rise is largely attributable to the projected increase in harvested acreage as the U.S. yield is forecast slightly below last season.
Based on the August forecast, total cotton planted acreage in 2012 is estimated at 12.6 million acres, the same as reported in the June Acreage report. Despite a 14-percent drop in planted acreage in 2012, harvested area is projected about 1.4 million acres above last season at 10.8 million. Based on the latest forecast, the national abandonment rate is projected at 14 percent, compared with 2011’s record of 36 percent. The U.S. yield is estimated at 784 pounds per harvested acre, 6 pounds below 2011 and the lowest in three seasons.
Upland production is projected at 17.0 million bales, 15 percent above the 2011 crop. During the previous 20 years, the August upland cotton production forecast was above the final estimate 11 times and below it 9 times. Past differences between the August forecast and the final upland production estimate indicate that chances are two out of three for the 2012 crop to range between 16.0 and 19.3 million bales.
Compared with the 2011 crop, upland production is expected to decline in the Southeast, Delta, and West regions, while the Southwest is projected to be significantly higher than a year ago (fig. 2). Based on the August estimates, the Southwest crop is expected to reach 7 million bales, 91 percent above last season’s drought-reduced 3.7 million bales. While drought conditions remain across much of the Southwest region, the forecast abandonment rate is near the long-term average at 24 percent (1.7 million acres). The 2012 yield is forecast at 615 pounds per harvested acre, compared with a 5-year average of 688 pounds.
The Southeast is forecast to be the second largest production region in 2012, after capturing the top spot in 2011. The crop is currently projected at 4.8 million bales, down from 5 million bales last season. A lower than average abandonment rate (1 percent) and higher than average yield (864 pounds per harvested acre) is expected to make the 2012 Southeast crop the second largest since 2006.
In the Delta, a cotton crop near its 5-year average is currently projected for 2012. Production is expected to reach 4 million bales, compared with 4.5 million in 2011. A 13-percent reduction in area this season more than offset a slightly higher yield. The Delta yield is currently projected at 911 pounds per harvested acre, 2 pounds above the 5-year average.
In the West, upland production is expected to reach 1.3 million bales, compared with 1.5 million in 2011. Despite lower area, a record yield of 1,553 pounds per harvested acre is projected, making the region’s upland crop the second largest since 2006. Extra-long staple (ELS) production remains concentrated in California, where more than 90 percent of the ELS crop is produced. Decreased area in 2012 is contributing to the latest production forecast of 663,000 bales, 22 percent below last season. However, an above -average yield projection of 1,363 pounds per harvested acre is expected to keep the ELS crop from declining further this season.
U.S. cotton crop development in early August is ahead of the 5-year average. As of August 5th, 74 percent of the cotton area was setting bolls, compared with an average of 70 percent. Although most States exceeded their historical averages, there were a few exceptions; the most notable exception was Missouri, where only 52 percent of the area was setting bolls, compared with the 5-year average of 90 percent. North Carolina, California, and Tennessee were also behind their respective 5-year pace. In addition, a number of States were reporting bolls opening, with Texas and Arizona leading the way. As of August 5th, 9 percent of the U.S. crop area had bolls opening, slightly above the 2007-11 average.
Meanwhile, 2012 U.S. cotton crop conditions have slipped below the 5-year average recently but remain above last season’s conditions (fig. 3). In early August, 41 percent of the crop area was rated “good” or “excellent,” compared with only 30 percent in 2011. In contrast, 27 percent of the 2012 cotton area was rated “poor” or “very poor,” compared with 41 percent a year ago. The worst crop conditions are in Oklahoma, Missouri, and Texas, with “poor” or “very poor” ratings occurring on 45 percent, 43 percent, and 41 percent of their respective area.
Demand Unchanged; Stocks Revised Upward
In August, U.S. cotton demand for 2012/13 remains estimated at 15.5 million bales, 500,000 bales above last season but the second lowest since 1998/99. Exports continue to account for the bulk of the demand and, despite a larger supply, U.S. shipments remain forecast at 12.1 million bales as a result of lower import demand expectations from China. As a share of global trade, the 2012/13 U.S. export estimate indicates a U.S. share of 32.5 percent, 3 percentage points below the 5-year average.
With forecasts for U.S. cotton production to exceed demand in 2012/13, ending stocks are projected to increase 2.2 million bales to 5.5 million, the highest in four seasons. Similarly, the stocks-to-use ratio of 35 percent is the highest since 2008/09. The U.S. farm price was narrowed on each end of the range this month. As of August, the 2012/13 upland price is forecast to range between 61 and 79 cents per pound.
2011/12 Supply and Demand Adjustments
Although the 2011/12 season has ended, minor adjustments were made this month and the estimates will be finalized over the next several months as additional end-of-year data become available. U.S. exports for last season were increased based on shipment data published in the Export Sales report. After adjustments based on data in the “export for own account” category, U.S. cotton exports for 2011/12 were placed at 11.7 million bales, 100,000 bales above the July estimate.
In addition, preliminary end-of-year stock data for 2011/12 suggest that stocks are near 3.3 million bales, unchanged from last month as the “unaccounted” category was increased. As a result, the stocks-to-use ratio for 2011/12 equaled 22 percent, up from the previous two seasons. The average U.S. farm price for 2011/12 is now estimated at 89.5 cents per pound, compared with 81.5 cents during 2010/11; the final estimate will be reported in October.
Global Cotton Production Remains Above Mill Use
World cotton production in 2012/13 is forecast at 114.1 million bales, nearly 300,000 bales above last month—largely the result of the higher U.S. production forecast. Higher alternative crop prices this season, coupled with low mill demand for the fiber, reduced global area and thus production (fig. 4). While 2012/13 production is forecast to increase in the United States from last season’s devastating drought, declines in the other major producing countries are reducing the world crop 7 percent below last season’s record of 122.7 million bales to its lowest in three years.
In China, the cotton crop is forecast at 31 million bales in 2012/13, 7.5 percent below the estimated 33.5 million produced last season. Planted area is expected to decline 9 percent; however, a record yield projection of 1,350 kg/ha is expected to help stabilize production there. Production in India, the second leading producer, is expected to reach only 23.5 million bales this season, 3 million bales below 2011/12 and the lowest in 4 years. Area in India is expected 11 percent below last season’s high of 12.2 million ha; this season’s 10.8-million-hectare forecast is the result of both weak cotton prices and the limited monsoon rainfall to date.
Production in Pakistan, Brazil, and Australia are also forecast lower in 2012/13 due to area declines. Pakistan is forecast to produce 9.7 million bales, nearly one million bales below 2011/12. Brazil’s crop is projected at 6.8 million bales, considerably below the previous 2 seasons. Meanwhile, Australia is expected to produce about 4.3 million bales this season, similar to 2010/11. Although each of these countries’ crops is expected below 2011/12, their respective crop sizes remain high relative to historical averages.
Global cotton consumption in 2012/13 is forecast at 108.2 million bales, down about 800,000 bales from last month but still nearly 2.8 million bales (2.6 percent) above 2011/12. China, the leading mill user of cotton, continues to trend lower and is projected to use only 39 million bales in 2012/13, one million below last season and the lowest since 2004/05. China’s cotton spinners are losing market share due to the Government’s established price floor, which has resulted in domestic prices about 50 percent above world prices. In contrast, India’s consumption is expected to rebound by a similar amount to reach a record 21.5 million bales in 2012/13.
Cotton mill use in Pakistan also is forecast higher, rising 900,000 bales to 11 million bales in 2012/13. Both India and Pakistan have increased exports of cotton yarn to China in recent months.
World Cotton Trade To Decline in 2012/13 Global cotton trade in 2012/13 is projected at 37.2 million bales, down 16 percent from last season’s second highest on record—44.3 million bales. The decline is attributable to the projected reduction of nearly 50 percent in China’s import demand from the estimated record of 24.3 million bales in 2011/12 to 13 million bales in 2012/13. China’s imports are anticipated to decline due to a combination of larger supplies, lower consumption, and Government policies directed at supporting domestic prices. However, it is likely that the decline in China’s imports will be partially offset by increases for several other countries where consumption is recovering.
In addition to higher exports for the United States in 2012/13, gains are also seen in Uzbekistan and the African Franc Zone, with exports forecast at 2.7 and 2.9 million bales, respectively. In contrast, a dramatic export reduction is projected for India as relatively tight stocks are expected to limit exports from last season’s record of 10 million bales. In 2012/13, Indian exports are forecast at only 3.7 million bales, the lowest in four years. Smaller declines are expected for Australia and Brazil as they produce smaller crops in 2012/13.
China Stock Increase Leads Global Rise Global cotton stocks in 2012/13 are projected at a record 74.7 million bales, 6.9 million higher than last season. However, most of the stock increase is attributable to China where stocks are forecast to increase 4.9 million bales to 34.2 million by season’s end. Growth in U.S. stocks is also contributing to the global rise. In contrast, foreign stocks outside of China are expected to remain relatively stable since 2010/11 at 35 million bales. See figure 1 for changes in the historical ending stock shares for China, the United States, and the rest of the world.
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Source: U.S. Department of Agriculture (USDA)