Record Global Cotton Stocks Supported by China in 2012/13
The latest U.S. Department of Agriculture (USDA) cotton projections for 2012/13 indicate that world ending stocks are expected to reach a record 82.5 million bales, 18 percent (12.3 million bales) above the previous season. Stocks have jumped dramatically over the previous two seasons as recent record cotton prices encouraged higher global production but, at the same time, discouraged world demand for the fiber. China’s policies that support domestic cotton prices above world prices have also contributed considerably to a stock build-up there and consequently in the global supply of cotton. The latest forecast for 2012/13 world cotton stocks indicates that global ending stocks will rise by a remarkable 77 percent (35.8 million bales) in only 3 years.
While world cotton stocks are rising for the third consecutive season, the extraordinary stock growth in China has occurred during the last two seasons. In 2010/11, China’s stocks reached a 15-year low as the national reserve had been reduced significantly; however, policies ensued—and are still in effect—that promoted a rebuilding of these strategic reserves through both domestic purchases and imports. By the end of 2012/13, China’s stocks are forecast to total 45.6 million bales, compared with only 10.6 million bales just 2 years earlier.
Although U.S. cotton stocks have risen since 2010/11, the United States has maintained roughly a 5-percent share of global stocks. However, with China holding an expected 55- percent share of world stocks in 2012/13, stocks in the rest of the world are forecast to decline more than 10 percent. Since most of China’s stocks are currently unavailable to the market, the growing tightness in global free supplies is supporting world cotton prices.
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U.S. Cotton Plantings in 2013 Projected To Be Lowest Since 2009
U.S. cotton acreage in 2013 is projected to decrease for the second consecutive season after reaching a 5-year high in 2011. Based on the National Agricultural Statistics Service’s (NASS) Prospective Plantings report that surveyed farmers at the beginning of March, producers expect to plant 10.0 million acres to cotton in 2013. This initial projection is 2.3 million acres (19 percent) below 2012’s actual planted area. Upland cotton acreage is expected to be at its lowest in 4 years, while extra-long staple (ELS) cotton area is projected at a 3-year low. Upland area is estimated at 9.8 million acres in 2013 while ELS plantings are estimated at 206,000 acres. These indications will be updated at the end of June in NASS’s Acreage report. As of April 7th, cotton plantings were underway in a few States with 5 percent of the expected area planted, compared with 9 percent in 2012.
U.S. cotton acreage is expected to decline this spring as estimates for 2012/13 demand remain below the production estimate, forcing ending stocks higher for the second consecutive season. Cotton prices have also decreased in 2012/13 and relative prices for 2013/14 are favoring competing crops as planting decisions are finalized. According to the 2013 Prospective Plantings report, each Cotton Belt region is projected to plant less cotton while three out of the four regions are expected to plant more corn than in 2012; soybeans are also expected to increase in the Southeast and Delta. Overall, the 2013 upland cotton area is estimated to account for approximately 21 percent of the three-crop Cotton Belt total, the lowest share since 2009.
While U.S. upland area is forecast to decrease in each region, over half of the decline is attributable to the Southwest region; in addition, more than one-third of the decrease is expected to occur in the Delta. The Southwest is projected to plant 5.7 million acres of upland cotton in 2013, 1.2 million acres (18 percent) below 2012 and the lowest since 2009. The Southwest is expected to account for 58 percent of the U.S. upland cotton area in 2013, similar to 4 years ago and one of the highest shares since 1980. If drought conditions continue in the region, 2013 upland area could be higher than projected in March as cotton is a more drought- tolerant crop than other Southwest alternatives.
The Southeast is expected to plant nearly 2.6 million acres to upland cotton in 2013, about 170,000 acres (6 percent) below 2012 but slightly above the 5-year average. Despite the area decline from a year ago, the Southeast is forecast to account for 26 percent of the U.S. upland acreage in 2013, the highest in more than half a century.
In the Delta region, 2013 cotton plantings are projected at a record low of only 1.3 million acres, 770,000 acres (38 percent) below 2012. Similarly, the region is expected to account for only 13 percent of the U.S. cotton acreage estimate, compared with a 5-year average of 18 percent. Meanwhile, the West is projected to plant one of the smallest upland crops on record there; the initial forecast is expected at only 280,000 acres, near the historic low of 247,000 acres in 2009. The West will once again account for around 3 percent of the U.S. upland acreage in 2013. In addition, ELS area in the West is forecast to reach 195,000 acres in 2013. Although 15 percent below 2012, the region will account for 95 percent of the total ELS acreage in 2013, which is slightly below last season.
The 2012/13 U.S. cotton production estimate was raised this month to 17.29 million bales as indicated in the March 2013 NASS Cotton Ginnings report; upland production was increased to 16.5 million bales while the ELS crop was raised to 780,000 bales. USDA will release final production estimates for 2012/13 on May 10th. With beginning stocks unchanged in April, this season’s cotton supply is now estimated at 20.65 million bales, nearly 2.5 million bales above 2011/12 but slightly below the supply in 2010/11.
In April, U.S. cotton demand was also increased with a higher export forecast for 2012/13. The U.S. export estimate was increased 250,000 bales to 13.0 million bales, reflecting strong shipments in recent weeks and the increased import demand expectations for China, a major destination for U.S. shipments. While 1.3 million bales above last season, the current 2012/13 forecast is equal to the 5-year average. Similarly, the U.S. share of world trade is expected to rise from about 26 percent in 2011/12 to 30 percent in 2012/13. While improving from a year ago, the U.S. share of global trade estimated for 2012/13 would be the second lowest of the century.
U.S. cotton mill use, on the other hand, remains estimated at 3.4 million bales,
100,000 bales above 2011/12 but still one of the lowest levels in more than a century. Mill use continues to exceed year-ago levels through the first 7 months of the 2012/13 marketing year. U.S. cotton mill use reached nearly 2.0 million bales for August-February this season, compared with 1.9 million bales in 2011/12, or about 3 percent above a year ago.
U.S. Ending Stocks Unchanged in April; Average Farm Price Revised
With offsetting adjustments to the supply and demand projections this month, U.S. cotton ending stocks remain estimated at 4.2 million bales. The ending stock estimate for the 2012/13 marketing year is 25 percent (850,000 bales) above 2011/12 and the highest in four seasons, as stocks have rebounded from recent extremely low levels. The current stocks-to-use ratio is now estimated at about 26 percent for 2012/13, compared with 22 percent last season and a recent low of 14 percent in 2010/11. With ending stocks rising this season, the U.S. farm price is forecast to decrease from last season’s 88.3 cents per pound. The average price received by upland producers for 2012/13 is projected to range between 70.5 and 73.5 cents per pound, with the midpoint of 72 cents per pound the lowest in 3 years.
World Cotton Production Down in 2012/13
Global 2012/13 cotton production is estimated at 119.7 million bales, down 4 percent from a year earlier, as this month’s USDA reduction for Brazil’s crop is partially offset by an increase for the United States. Declining production is largely driven by a market environment that favored the cultivation of competing alternatives. Global 2012/13 harvested cotton area is estimated at 34.2 million hectares, down 4 percent from the preceding year. Global yield is estimated at 763 kg/hectare.
Brazil’s 2012/13 crop is estimated at 5.8 million bales, a decline of 33 percent from the preceding year and an 8-percent (500,000 bales) reduction from the previous month. Record soybean and corn prices, disease outbreak, and erratic precipitation are expected to lower the crop in Bahia and Mato Grosso, which together account for over 80 percent of Brazil’s total annual cotton production. The United States is expected to produce 17.3 million bales in 2012/13, a 2-percent increase from the previous month’s estimate and 11 percent higher than the previous year’s crop.
World Cotton Consumption and Ending Stocks Up in 2012/13
Global 2012/13 cotton consumption is estimated at 107.4 million bales, an increase of 4 percent from the preceding year. China—the world’s leading cotton spinner— is expected to consume 36.0 million bales in 2012/13, down 5 percent from a year ago and the lowest consumption in nearly a decade. China’s domestic policies have constrained domestic mill use, forcing the textile industry to purchase yarn from foreign markets, with Pakistan, India, and Vietnam the largest suppliers. However, China’s mill use decline is expected to be more than offset by increases in other cotton consuming countries such as Bangladesh, India, Indonesia, Pakistan, Turkey, and Vietnam.
Bangladesh and India are estimated to consume 3.7 million bales and 22.0 million bales, respectively, up 12 percent and 11 percent from the previous year. In USDA’s April World Agricultural Supply and Demand Estimates (WASDE) report, India’s 2012/13 mill use estimate was raised by 250,000 bales from the previous month. Indonesia and Pakistan are expected to consume 2.2 million bales and 11.5 million bales, respectively, in 2012/13, reflecting increases of 16 percent and 15 percent from the preceding year. Mill use in Turkey and Vietnam is estimated at 6.1 million bales and 2.2 million bales, respectively, up 9 percent and 33 percent from a year ago.
With world production outpacing consumption, global 2012/13 ending stocks are estimated to rise 18 percent to 82.5 million bales. China is now projected to account for 55 percent (45.6 million bales) of global 2012/13 ending stocks, due to massive purchases for the national reserve. USDA’s April revision increased China’s ending stocks by 1.5 million bales, up 3 percent from the previous month, due to higher expected imports. The unprecedented increase in global ending stocks is estimated to raise the world 2012/13 stocks-to-use ratio to 77 percent, 9 percentage points above the previous year. Despite the recent surge in U.S. and world cotton market prices, rising world stocks are likely to depress the season averages below 2011/12.
World 2012/13 cotton imports are expected to decline 2 percent from a year ago to 43,7 million bales, due largely to a sharp decline in China’s demand for foreign cotton. China is estimated to import 16.5 million bales in 2012/13, down 33 percent from the preceding year, but up 1.5 million bales from previous month’s estimate, based on reports of additional allocations of import quotas to mills. At this current level, China will account for 38 percent of world cotton imports, down from a global share of 55 percent in the preceding marketing year. The decline in China’s imports is partially offset by increased imports by Bangladesh, India, Indonesia, Pakistan, Thailand, Turkey, and Vietnam.
India is expected to export 7.0 million bales in 2012/13, up 1.5 million bales from the previous month and 37 percent lower than a year ago. USDA’s April WASDE raised Australia’s 2012/13 exports by 200,000 bales to 4.8 million bales from previous month’s estimate based on the pace of season-to-date exports from the Southern Hemisphere country. The African Franc Zone nations of Burkina Faso and Mali are expected to export 975,000 bales and 900,000 bales in 2012/13, up 63 percent and 44 percent, respectively, from a year earlier. The United States is expected to export 13.0 million bales in 2012/13, representing an increase of 250,000 bales from the previous month and an 11-percent increase from 2011/12.
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