USDA – Cotton and Wool Outlook: October 14, 2015

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 Global Cotton Stocks to Decline in 2015/16

The latest u.s. Department of Agriculture (USDA) cotton projections for 2015/16 indicate that world cotton stocks are expected to decrease 4 percent from last season’s record to 107 million bales. The global stock decline would be the first in 6 years; the recent dramatic stock buildup resulted from policies in China that supported domestic cotton prices above worldprices (fig. 1).

With new policies in place to limit raw cotton imports in 2015/16, stocks in China are tbrccast to decrease 4 percent—the Tirst reduction there in 5 seasons. However, China’s stocks remain at an extremely high 65.3 million bales, or nearly 2 years’ worth of cotton mill use. Meanwhile, stocks outside of China have seen relatively modest changes. As recently as 2010/11, India was the single largest stockholder, with 11.5 million bales. In 2015/16, stocks in India are projected to rise slightly to 13.5 million bales, or about 13 percent of global stocks, compared with China’s share of 61 percent. u.s. stocks contribute 3 percent of the total, while stocks in the rest of the world account for 23 percent.

Domestic

According to USDA’s October Crop Production report, the 2015 u.s. cotton crop is estimated at 13.3 million bales, marginally below last month’s íorccast but 3 million bales (18 percent) below the 2014 crop. With harvested area unchanged in October and the national yield reduced only slightly, the u.s. production estimate decreased 90,000 bales this month.

The u.s. upland cotton crop is forecast at 12.9 million bales, below both last season and the 5-year average. During the previous 20 years, the October estimate has been below final cotton production 11 times and above it 8 times; the October forecast equaled íínal production in 1 year. Past differences between the October estimate and íínal production indicate that chances are two out of three that the 2015 u.s. upland cotton crop will range between 12.2 and 13.5 million bales.

Upland cotton production is íbrecast to decrease in each of the Cotton Belt regions this season (fig. 2). In the Southwest, the 2015 upland crop is estimated at 6 million bales, 500,000 bales below last season as both area and yield are projected lower. Bcnctlcial rainfall at planting time has reduced expected abandonment to only 6 percent, the lowest in 5 seasons. The Southwest yield is forecast at 608 pounds per harvested acre, compared with the previous 3-year average of 632 pounds per harvested acre.

In the Southeast, the 2015 cotton crop is íòrecast at 4.3 million bales, the lowest in 6 seasons as reduced area accounted for most of the decline. The Southeast yield of 930 pounds per harvested acre is the third highest on record. However, the October estimates do not include effects of the recent ílooding in South Carolina; any necessary adjustments will be incorporated in subsequent Crop Production reports. In the Delta, the cotton crop is projected at 2.2 million bales, the lowest since 1983. With 2015 cotton area at a record low due to favorable altematives, the regional yield of 1,101 pounds per harvested acre is near the 2014 record high and kept production from declining íurther.

In the West, the upland cotton crop is íòrecast at 500,000 bales in 2015, down from 768,000 bales last season and the lowest in 8 decades. While area declined for the tburth consecutive season, the region’s yield remains the third highest on record. In addition, extra-long staple (ELS) cotton is mainly produced in the West, particularly Calitbrnia. ELS production is forecast at 451,000 bales—20 percent below 2014— with the lowest area and crop since 2009.

Total 2015 u.s. cotton harvested area is estimated at nearly 8.2 million acres, compared with 9.3 million acres last season. The national yield is íòrecast at 784 pounds per harvested acre, the lowest in 7 years. For current production estimates by State, see table 10.

2015/16 Demand Estimates Unchanged in October; Farm Price Lowered

U.S. cotton demand in 2015/16 remains estimated at 13.9 million bales, 900,000 bales below last season and the smallest since a similar demand was seen in 1988/89. u.s. exports account for 73 percent (10.2 million bales) of the total, with mill use contributing the remainder. While the lowest export estimate since 2000/01, the u.s. share of global trade is íòrecast to reach 30 percent in 2015/16, the second highest share since 2010/11 (fig. 3).

With u.s. demand projections unchanged in October, the lower production estimate reduces ending stocks slightly to 3.1 million bales, 600,000 bales below the beginning level. As a result, the stocks-to-use ratio is íòrecast at 22 percent in 2015/16, compared with last season’s 25 percent. Based on the latest supply and demand estimates and the most recent prices, the average upland cotton farm price is projected to range between 54 cents and 64 cents per pound in 2015/16. The midpoint of 59 cents would represent a slight decline from last season’s estimate of 60.5 cents per pound and amuch larger decline from 2013/14’s 77.9-cent average.

International Outlook

Global Cotton Production Lowest in 6 Years

World cotton production in 2015/16 is tbrccast at 107.4 million bales, slightly below tìie September projection and 10 percent below a year ago. The October production estimate rcllccts decreases mainly for China, Pakistan, Brazil, and Australia; the declines were partially offset by an increase for Mali. Global harvested area is íòrecast at 31.2 million hectares (77.2 million acres) in 2015/16, about 8 percent below 2014/15 and the lowest since 2009/10. The world cotton yield is projected at 749 kilograms per hectare (668 pounds per acre) in 2015/16, the lowest in 6 seasons.

Production in China and Pakistan was reduced 700,000 bales and 500,000 bales this month, respectively, as area and yield were projected lower. For China, 2015/16 cotton production is íòrecast at 25.3 million bales, 16 percent below 2014/15 and the lowest crop estimate since 2003/04; the smaller crop stems from reduced incentives to plant cotton nationally and lower Xinjiang yields resulting from adverse weather. For Pakistan, 2015/16 production is projected at 9.5 million bales, 10 percent below the previous season, as pest problems are reported to have reduced the cotton crop.

Yield reductions in Brazil and Australia reduced the 2015/16 crop projections there by 200,000 bales and 100,000 bales, respectively. Production is now íòrecast at 6.5 million bales in Brazil and 2.1 million bales in Australia. In contrast, Mali’s cotton production is forecast to reach 1.2 million bales—matching its record in 2003/04— as higher area and yield are expected. For India, the world’s leading producer in 2015/16, production is íbrecast at 29 million bales, 500,000 bales below last season; lower area and a higher yield will keep India’s crop near the 5-year average.

World Cotton Mill Use to Rise Slightly in 2015/16; Trade to Decline

Global cotton mill use is íòrecast to rise less than 2 percent in 2015/16 to 112.3 million bales. Despite a fourth consecutive annual increase, cotton continues to face strong price competition from manmade fibers; the battle for fiber share in many apparel Products is expected to limit cotton mill use growth once again in 2015/16. Although China is the world’s leading mill user of cotton, China is also the largest producer of polyester staple fiber, accounting for more than 60 percent of the global total. In 2015/16, China’s cotton mill use is projected at 33.5 million bales, up slightly from a year earlier despite a downward trend that has resulted from signiTicant cotton yam imports.

The reduction in China’s cotton mill use over the past 5 years has led to growth for a number of other countries (fig. 4). Countries benefiting from China’s rising yam imports include India, Pakistan, and Vietnam. Cotton mill use in India during 2015/16 is projected at 25.5 million bales, 4 percent above 2014/15 and a record. In Pakistan, mill use is íòrecast at 10.4 million bales in 2015/16; lower supplies are expected to keep mill use there 2 percent below 2014/15. For Vietnam, 2015/16 cotton mill use is projected to rise 15 percent to 4.65 million bales. Textile investment has flowed into Vietnam in recent years, leading to a doubling of the country’s cotton mill use in just 3 years.

While cotton consumption improves slightly in 2015/16, cotton trade is tbrccast to decline for the third consecutive season. Due to China’s expected reduction in raw cotton imports, global imports are projected at 34.2 million bales in 2015/16, compared with 35.5 million bales last season and a record 46.4 million bales in 2012/13. China is íorccast to import about 5.8 million bales of cotton in 2015/16, or about 30 percent less than last season. Moderating this decline, however, are projected import increases in Bangladesh, Vietnam, and Turkey.

Meanwhile, global cotton exports during 2015/16 are seen lower for a number of the major shippers; exports are íorccast to decline 1 million bales in the United States. In addition, Brazil and Uzbekistan are projected to ship a smaller quantity this season as a result of lower supplies. On the other hand, cotton exports for India and Australia are íorccast to rise slightly in 2015/16.

Global Ending Stocks to Decline From Record Level

Based on the latest cotton supply and demand projections, world ending stocks are íorccast at 107 million bales in 2015/16, 4 percent (nearly 5 million bales) below the 2014/15 record (fig. 5). The stocks-to-use ratio is projected at 95 percent this season, down from 2014/15’s 101 percent but still well above the recent low of 40 percent seen in 2009/10. In 2015/16, China is expected to account for 61 percent of the total world stocks in 2015/16, similar to the previous 2 seasons. Although global stocks are projected to decrease in 2015/16, cotton prices are also íorccast lower. In 2015/16, the Cotlook A-Index is projected slightly below the 2014/15 average of 71 cents per pound and would be the lowest since 2008/09.

Highlight

Employment Rises in U.S. Textile Industry as Domestic Consumption of Cotton Rises

Employment at u.s. textile manutầcturcrs íínally grew in 2014, and is on track to grow again in 2015. This was its first increase in more than 20 years (fig. 6). u.s. employment growth has recently been a focus of markets as the timing of a transition in u.s. monetary policy has been under consideration, so developments in textile employment bear examination.

Total u.s. manufacturing employment declined every year between 1999 and 2010, and began steadily growing again in 2011 (fig. 7). Textile plant employment in the United States declined every year from 1995 to 2013, but these declines were negligible between 2010 and 2013 compared with the preceding decade. Annual employment declines for this sector averaged more than 8 percent during 2000-10, compared with less than 1 percent afterwards. In 2014, employment grew 0.2 percent, and a similar increase seems likely for 2015.

While u.s. total maniitầcturing employment and u.s. textile plant employment have followed broadly similar trends since 1992, there have been important differences. Textile employment has followed a path that is almost exactly the inverse ofthe path ofthe growing import share of u.s. household fiber consumption.1 Total maniitầcturing employment has, in most years, been steadier than the estimated u.s. import share of manutầcturcd Products, only showing Sharp declines during periods of economic downtum.

The pattems of u.s. textile employment and import share of consumption over time are closely tied with changes in u.s. and global trade policy, as well as longrun changes in comparative advantage. Textile plants produce yam and tầbric. which are inputs into the highly labor-intensive production of apparel. In the long run, relative wage rates between the United States and lower income countries have meant that an increasing share of the clothing purchased by u.s. consumers has been produced outside the United States. Trade policy in the United States and other high-income countries attempted to slow this process for many years, resulting in the global Multifibre Arrangement (MFA). The MFA’s System of import quotas was phased out between 1984 and 2004 as part of the global package of trade reforms that created the current World Trade Organization (WTO). The MFA phase-out was spread over 10 years, but the most important liberalization was weighted towards the end of that period. This, combined with the re-integration of China into the world trading System, helped drive the rising import share of u.s. textile product consumption starting in the mid-1990s.2

Employment by the u.s. apparel industry has continued to decline through 2015— in large part reílecting the long-term trend in comparative advantage—but the rate of decline has slowed to a 3.3-percent rate for 2010-15, compared with 11 percent in the previous 10 years. The past trend of rapidly rising imports as a share of u.s. textile product consumption has slowed signihcantly; apparel industry employment losses now rcílcct rising productivity as well as the shiữing of production to outside the United States. Only 140,000 people were employed in the u.s. apparel sector in 2014, 40 percent less than in textiles and 85 percent lower than in 1990.

In the more capital-intensive sector of yam and fabric production, u.s. output and employment trends have been more positive than in apparel. Total ííber use by u.s. textile mills has begun a rebound since its 2009 low, and cotton consumption by u.s. textile mills in marketing year 2015 is íòrecast at 3.7 million bales, 3.5 percent above a year earlier and 12 percent above its 2011 low. Investment in u.s. cotton spinning by íírms from China and India is undemay as well, indicative of the proíòund changes in the world trading System since the phase-out of the MFA started in the 1980s, as well as the continuing importance of u.s. trade policy in maintaining u.s. textile exports to apparel-producing countries in regional trade agreements with the United States.

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