Global Cotton Trade Steady in 2015/16
The latest U.S. Department of Agriculture (USDA) projections for 2015/16 indicate that world cotton trade is forecast similar to the previous season and the lowest since 2010/11. Global trade is projected at 35.4 million bales in 2015/16, marginally below 2014/15 but 24 percent below 2012/13’s record of 46.5 million bales.
The recent global cotton export record was attributable to China’s substantial raw cotton import demand; however, China’s imports are forecast to decline for the fourth consecutive season in 2015/16, providing varying expectations for the leading cotton shippers (fig. 1). For the United States, exports are projected more than 1 million bales below a year ago as the weather-reduced crop is limiting supplies. In contrast, India’s exports are expected to rebound—despite a lower crop—as demand from Pakistan has increased. Exports from Brazil and Australia are forecast to rebound slightly in 2015/16 as well, while those from Uzbekistan are declining for the fourth consecutive season.
U.S. Cotton Crop Reduced Further in December
The USDA December forecast of 2015 U.S. cotton production was reduced nearly 2 percent this month to 13.0 million bales, 3.3 million bales below the 2014 crop. Planted and harvested area remain estimated at about 8.6 million acres and 8.2 million acres, respectively. The relatively low abandonment rate of 5 percent is the result of plentiful rainfall this season. The 2015 national yield is projected at 768 pounds per harvested acre, the lowest since 2003/04. Upland cotton production is estimated at 12.6 million bales, compared with the 15.8 million bales produced in 2014. The extra-long staple (ELS) crop is forecast at 451,000 bales, the lowest in 6 years. For current production estimates by State and region, see table 10.
Upland cotton production is forecast to decrease in each of the Cotton Belt regions this season as lower area and yield reduced the crop (fig. 2). The Southwest upland crop is forecast to approach 6.2 million bales in 2015, compared with 6.5 million bales in 2014. With a relatively low abandonment rate of 6 percent, the region’s yield of 629 pounds per harvested acre is below the 5-year average.
In the Southeast, 2015 cotton production is estimated at only 3.8 million bales (the lowest since 2009), as lower yield estimates for North and South Carolina contributed significantly to this season’s reduction. The region’s yield is forecast below the 5-year average at 845 pounds per harvested acre. In the Delta, cotton production is expected to approach 2.1 million bales, the smallest crop there since the Payment-In-Kind (PIK) season of 1983. While area there has declined below 1 million acres, the Delta yield is forecast at 1,046 pounds per harvested acre—the third highest on record. In the West, upland production is expected at 511,000 bales in 2015, as water issues continue to limit cotton acreage; the region’s production is expected to be its lowest in 8 decades despite a near-record yield of 1,543 pounds per harvested acre.
U.S. Demand and Stocks Forecasts Reduced; Farm Price Unchanged
U.S. cotton demand for the 2015/16 season is forecast at 13.7 million bales, 200,000 bales below last month and nearly 8 percent (1.1 million bales) below 2014/15. U.S. exports are forecast at 10.0 million bales in 2015/16, 200,000 bales below last month’s forecast, due to lower available supplies and lagging sales. The current export forecast is nearly 1.3 million bales below last season’s shipments. With the lower volume (particularly to China), the U.S. share of global trade is projected at 28 percent, compared with 2014/15’s 32 percent and 2013/14’s 26 percent. Meanwhile, U.S. cotton mill use remains projected at 3.7 million bales, up from last season’s 3.6-million-bale estimate.
As a result of lower production and export estimates in December, U.S. cotton ending stocks are forecast at 3.0 million bales, 700,000 bales below the beginning level. Both the stocks and the stocks-to-use ratio—estimated at 22 percent—would be the lowest in two seasons. Based on the latest supply and demand outlook for 2015/16, the midpoint for the upland cotton farm price remains at 59 cents per pound in December; the forecast price is projected to range between 56 and 62 cents per pound, compared with the final 2014/15 price of 61.3 cents per pound.
Global Cotton Production To Decrease in 2015/16
World cotton production in 2015/16 is forecast at 103.7 million bales, 13 percent below last season, as lower area combined with a reduced yield push the global crop to its lowest since 2009/10 (fig. 3). Considerable production declines in 2015/16 for all of the major producers reduce the world crop by more than 15 million bales. Global harvested area is estimated at 31.2 million hectares, compared with 34.0 million hectares in 2014/15. The world cotton yield is forecast at 723 kg/hectare, compared with 763 kg/hectare last season.
Production for the top two producers—India and China—is projected to account for a combined 51 percent of the world total, with forecasts of 28.5 and 24.3 million bales, respectively. For India, the 2015/16 crop is in its second year of decline and matches 2012/13’s production. Lower area coupled with higher yields combine to reduce India’s production 1 million bales in 2015/16. The decline is more dramatic for China, as production is forecast to fall 5.7 million bales in 2015/16 to 24.3 million bales. With total area declining and area moving out of the lower yielding regions of China, the national yield is forecast at a record 1,534 kg/hectare.
Pakistan’s crop is projected at 8.0 million bales in 2015/16, nearly 25 percent below last season, due to reduced area and yield. Harvested area in Pakistan is estimated at
2.8 million hectares, the lowest in 5 years. Insect damage, as well as reduced pickings, are expected to keep the national yield at 622 kg/hectare, 100 kg/hectare below the 5-year average.
World Mill Use Continues Slow Rebound
World mill use is expected to rise 0.9 percent in 2015/16, its fourth consecutive annual increase. However, this would also be the third consecutive year world cotton consumption has grown more slowly than its longrun average growth rate of 1.8 percent.
The International Monetary Fund’s most recent macroeconomic outlook projects global income growth in 2015 at its slowest in 6 years. Low polyester prices relative to cotton, and issues associated with China’s transition to new cotton policies and adjustments to higher wages, are also factors limiting cotton consumption growth in recent years.
Global Cotton Stocks To Decline from Record
World cotton stocks are expected to decline by 7.6 million bales in 2015/16, their first decline in 6 years (fig. 4). Despite the decline, expected world stocks are extraordinarily high—equal to 94 percent of world consumption, which is more than double the average ratio of stocks to consumption that prevailed over 1980/81- 2010/11. The increase in stocks over longrun levels is almost entirely attributable to the accumulation of cotton in China’s national reserve in the course of supporting its domestic cotton prices above world prices during 2011/12-2014/15. Stocks outside of China in 2015/16 are expected to equal 35 percent of world consumption, versus a 1980-2010/11 average of 31 percent.
Despite tightening stocks, little change is expected in cotton prices in 2015/16. The U.S. season-average farm price is expected to fall 3.8 percent, and no change is expected in the A-Index. In addition to a continued high level of ending stocks in China, other factors affecting year-to-year price changes include relative tightness of supply for certain qualities of cotton and the strengthening of the U.S. dollar. During the course of 2014/15, the U.S. dollar rose 14 percent in inflation-adjusted terms, and it has generally continued rising since July 2015. While the relatively tight supplies of high-quality cotton have helped sustain the A-Index in 2015/16, exchange rate shifts have had a negative impact on commodity prices in U.S. dollar terms, including cotton.