Economic Services - National Cotton Council
TO CONVERT BALES TO METRIC TONS:
number of bales / 4.59
TO CONVERT ACRES TO HECTARES:
number of acres * 0.40469
MACROECONOMIC ENVIRONMENT – Let's begin with an overview of the state of the general economy.
U.S. REAL GDP – According to the latest estimates released by the Bureau of Economic Analysis, real GDP increased at an annual rate of 5.0 percent in the third quarter of 2014. Estimates from the Bureau of Economic Analysis show an increase of 2.2 percent in the fourth quarter of 2014.
OK-WTX CRUDE OIL SPOT PRICE – Since the beginning of the year, prices have hovered around $50.00 per barrel.
#2 DIESEL FUEL RETAIL PRICE – Diesel prices have followed the same trend as that of crude oil prices. The price for #2 diesel fuel at the beginning of April was just over $1.65 per gallon.
UNEMPLOYMENT RATE – The unemployment rate is 5.5% for March, unchanged from the previous month's unemployment rate.
FEDERAL BUDGET SURPLUS – The latest projections by the Congressional Budget Office (CBO) show deficits continuing for the next several years. For fiscal '15, CBO projects a deficit of roughly $486 billion. Deficits persist through 2021.
CBO AG BASELINE SPENDING – Looking at fiscal 2014 through 2016, commodity programs are expected to costs between $2.4 and $8.8 billion per year, with conservation programs adding an additional $5.0 to $5.4 billion per year. Within commodity support, cotton outlays average about $577 million per year.
WORLD REAL GDP GROWTH –The International Monetary Fund estimates that the world economy grew 3.30% during the course of 2013. China's economy was expected to increase 7.80% in 2013. Estimates for India show GDP growth of 5.00% for 2013. For 2014, the world economy continued to grow at 3.30%. China's economy was expected to climb 7.40% in 2014 while estimates for India show GDP growth of 5.80%. For 2015, world GDP continues to climb at a rate of 3.50% while the U.S., Indian and Chinese economic sector are expected to continue to grow.
PERCENT CHANGE IN VALUE OF U.S. DOLLAR - In 2013, the euro averaged 0.75 per dollar, which represents a modest appreciation from the 2012 value. The euro's strength in 2013 surprised many analysts, who had expected tough economic conditions in some member states to weigh on the single currency. Currently, the euro is averaging 0.93 per dollar.
EXCHANGE RATE INDEX – The Federal Reserve Board publishes a real exchange rate index comparing the dollar to a weighted average of currencies of important trading partners, excluding major developed economies. Mexico carries the largest weight, followed by China, South Korea and Taiwan. The index showed a dramatic strengthening of the dollar in 1998 due to currency devaluations associated with the Asian financial crisis. In early 2001, the index sat at just under 118. The index peaked at roughly 124 in 2003, but now sits at roughly 99.
AG PRICES RECEIVED – The U.S. Department of Agriculture (USDA) publishes indices of prices received by farmers. At the beginning of 2015, the index of crop prices was 85. The index of livestock prices was down to 115.
NET FARM INCOME – Net farm income is forecast to be $73.6 billion in 2015, down nearly 32 percent from 2014's forecast of $108 billion. The 2015 forecast would be the lowest since 2009.
U.S. COTTON SUPPLY – Having set the stage for the overall economy, let's turn our attention to the U.S. cotton sector.
DEC COTTON FUTURES –Over the life of each contract, the December 2015 contracthas averaged roughly thirteen cents per pound lower than the December 2014 contract.
DEC CORN FUTURES - Over the life of each contract, the average value of the December 2015 futures contract has been roughly $0.68 per bushel lower than the December 2014 contract.
NOV SOYBEAN FUTURES - Over the life of each contract, the November 2015 soybean contract has averaged roughly $1.70 per bushel lower than the November 2014 contract.
U.S. COTTON ACREAGE – USDA's March Prospective Plantings Report estimates 2015-16 U.S. cotton plantings at 9.55 million acres, down 13.5% from 2014. Upland planted area is estimated to have decreased 13.3% to 9.40 million acres. ELS cotton producers are expected to plant 150,000 acres, down 21.9%.
U.S. COTTON PRODUCTION – In its April report, for 2012, the USDA forecast U.S. production at 17.3 million bales. A decline of roughly 4.4 million bales is projected for the 2013 crop with production falling to 12.9 million bales.U.S. production is estimated to be 16.3 million bales for 2014/15.
U.S. COTTON SUPPLY – IntheApril report, USDA estimates production at 17.3 million and beginning stocks of roughly 3.4 million for the 2012 crop year. Combined with imports this gives total supplies of 20.7 million bales for the 2012/13 marketing year.
By adding beginning stocks of 3.8 million bales to the 12.9 million bale crop, USDA believes total U.S. supply will fall roughly 4.0 million bales to 16.7 million bales in 2013.
For the 2014 crop year, combining projected production of 16.3 million bales with expected beginning stocks of 2.5 million bales results in a total U.S. supply of 18.8 million bales. This is up roughly 2.0 million bales from the 2013 level.
U.S. COTTON DEMAND – Moving along, we'll focus on U.S. cotton demand.
U.S. RETAIL FIBER CONSUMPTION – Net domestic consumption is a measure of the U.S. retail market's size. It measures both cotton spun in the U.S. (mill use) and cotton consumed through textile imports. Total fiber consumption in 2014 is estimated to be 47.6 million bale equivalents. Cotton's share of net domestic consumption decreased 1.6% this past year to 36.1%, which translates to 17.2 million bales. For 2015, NCC projects net domestic consumption of all fibers to increase to 49.1 million bales. With a projected share of 36.2%, cotton's net domestic consumption is projected to be 17.7 million bales.
COTTON'S SHARE OF CONSUMPTION – While it is important that the retail market continue to grow, cotton must also be concerned with its share of the market and the competition from manmade fibers. During the past few years, cotton's share of the U.S. retail market has been on the decline. In 2002, cotton's share reached just over 43%. The higher prices of 2003 were met with some shifting from cotton to other fibers. As a result, cotton's share of the retail market dipped. However, in 2006 cotton's share of the retail market climbed back up to 43.1%. For 2008, cotton's share of the retail markets reached the 44.0% mark. In 2009, cotton's share had fallen back to just over 43%. This decline continued in 2010 through 2012. Cotton's share of the retail market declined further in 2013 to 37.7%.
U.S. RETAIL COTTON CONSUMPTION (MONTHLY) – The U.S. retail market reached 17.3 million bales of cotton textile products for calendar 2014. Data through February shows us running slightly behind last year's pace by approximately 162,000 bales.
U.S. RETAIL COTTON CONSUMPTION (HISTORICAL) - Imported goods make up the largest portion of U.S. net domestic consumption. Imported cotton textiles decreased from 17.6 million bale equivalents in 2013 to an estimated 17.4 million in 2014
U.S. COTTON TEXTILE IMPORTS - Imports of cotton goods in calendar 2014 were estimated to have decreased by 1.6% to 17.4 million bale equivalents. In calendar 2015, NCC projects cotton textile imports to increase to 17.8 million bales.
U.S. COTTON CONTENT - For imports, it is important to consider that a significant portion of imported goods contain U.S. cotton. Since much of what the U.S. exports to the NAFTA (North American Free Trade Agreement) and the CBI (Caribbean Basin Initiative) countries is in the form of fabric and piece goods that come back in the form of finished goods, the trade gap is not as wide as implied by gross imports and exports. NCC analysts estimate that 27.7% of all cotton goods imported in 2014 contained U.S. cotton. This is a 0.01% increase over the previous year. In bale equivalents, these imported cotton goods contained 4.8 million bales of U.S. cotton. This is due, in large part, to our trading partners in NAFTA and the CBI.
COTTON TEXTILE TRADE WITH MEXICO - Imports from Mexico in 2014 were estimated at 1.1 million bales, down approximately 2.0% from the previous year.
COTTON TEXTILE TRADE WITH CBI– Imported cotton goods from CBI for the year were estimated at 2.3 million bale equivalents, up 3.5% from the previous year.
COTTON TEXTILE IMPORTS FROM CHINA- For the tenth consecutive year, China was the largest supplier of cotton textile imports into the U.S. Total cotton product imports from China decreased to an estimated 5.5 million bale equivalents in 2014, down 4.5% from 2013 and up by approximately 573% from 2001 when China entered the WTO. China's share of imported cotton goods in the U.S. market accelerated from 10.9% in 2004 to an estimated 31.9% in 2014.
CALENDAR MILL USE – Mill use of cotton decreased from the previous year and is estimated at 3.49 million bales in calendar 2014, 2.5% below 2013. For calendar 2015, NCC forecasts domestic mill use of cotton at 3.62 million bales.
CROP YEAR MILL USE – USDA's latest estimate for mill use in the 2012 crop year is 3.5 million bales. The USDA estimates 2013 crop year mill use at 3.6 million bales. For 2014, USDA projects domestic mill use of cotton at 3.7 million bales.
U.S. COTTON PRODUCTION & USE - Looking at the 2012 crop year, USDA estimates exports at roughly 13.0 million bales while U.S. production is estimated at 17.3 million bales and mill use is estimated to be 3.5 million bales. For 2013, exports fall to 10.5 million bales while mill use is expected to climb to 3.60 million bales. Production is expected to fall. USDA estimates U.S. production to be 12.9 million bales for 2013/14. For 2014, mill use is expected to reach 3.7 million bales, up from the previous year while production is expected grow to 16.3 million bales and exports are expected to reach 10.7 million bales.
WORLD MARKET – Exports of U.S. cotton will be dependent on conditions in the world market.
CHINA COTTON SUPPLY & USE – For China, production is expected to climb to 35.0 million bales for the 2012 crop year. In terms of consumption, one of the big questions will be the factors driving China's mill use. Much of the growth has been fueled by the push to increase textile exports, and they will continue to be a significant exporter of textiles. However, over the past couple of years, it's becoming more evident that growth in their own consumer demand for cotton textiles is also driving the textile industry. Assuming this trend will continue, mill use is projected to be roughly 36.0 million bales. For 2013, production will fall to 32.8 million bales while mill use falls to 34.5 million bales. For the 2014 crop year, USDA projects production to drop to the 30.0 million bale range while mill use climbs back to the 35.0 million bale range.
WORLD COTTON PRODUCTION - USDA estimates put the 2012 crop at 123.6 million bales and 120.4 million bales for the 2013 crop. USDA estimates for 2014/15 show world production at roughly 119.2 million bales.
WORLD FIBER DEMAND – The competition from man-made fiber is getting stronger all of the time. According to PCI, the use of polyester has surpassed cotton, and for 2010, consumption topped 170 million bales. This is over 55 million bales above their estimate of the consumption of cotton. For 2014, PCI estimates polyester consumption to rise to approximately 212 million bales.
FIBER PRICES – While manmade fiber prices moved higher, cotton prices weakened substantially as we went through 2004. Since 2004, cotton prices have worked their way back to and above the level of manmade fiber prices.
WORLD COTTON MILL USE – In its April report, USDA estimates 2012 world mill use at 107.7 million bales and 109.0 million bales for the 2013 crop year. For crop year 2014 mill use is set at roughly 111.1 million bales.
FOREIGN PRODUCTION & USE – The gap between foreign production and use influences our ability to export cotton. The gap narrows between production and consumption in 2012 with production forecast at 106.3 million bales and mill use at 104.2 million bales. For the 2013 crop year, production is estimated at 107.5 million bales and mill use at 105.5 million bales. For the 2014 crop year, production is estimated at 102.9 million bales and mill use at 107.4 million bales.
U.S. COTTON EXPORTS – According to USDA, the U.S. will export 13.0 million bales in the 2012 crop year. In 2013, exports fall to 10.5 million bales. For 2014, exports climb to an estimated 10.7 million bale mark.
WORLD ENDING STOCKS - World stocks on July 31, 2013 are projected to reach 90.0 million bales. While there are a host of uncertainties that can lead to major changes in the balance sheet, not the least of which is weather, the current estimates still leave us with a lot of stocks to work through the system. According to USDA, stocks should be roughly 101.8 million bales by the end of the 2013 marketing year. By the end of the 2014 marketing year, stocks are estimated to climb to 110.1 million bales.
COTTON STOCKS/USE – Another way to look at the stocks situation is to focus on the stocks/use relationship for the world less China. For the 2003 marketing year, that ratio was estimated to be 44%. The larger '04 crop pushed that ratio back up to 60%. The ratio is estimated at 55% for the 2005 marketing year and 57% for 2006. For 2007, the ratio is projected to remain at 57%. In 2008, the stocks-to-use ratio should be somewhere around 61% and 47% in 2009. For 2010, the stocks-to-use ratio is estimated to climb to 57%. For the 2011 marketing year, the ratio is expected to climb to 64% and falls to 55% in the 2012 marketing year and is expected to drop to 52% through the 2013 marketing year. For 2014, the ratio is forecast to climb to 59%.
U.S. SUPPLY & DEMAND – In its April report, U.S. production is estimated to be 16.3 million bales for 2014/15. Mill use is estimated at 3.7 million bales while exports are reported to be 10.7 million bales. The estimated total offtake stands at 14.4 million bales. With beginning stocks of roughly 2.5 million bales, this would result in U.S. ending stocks of 4.4 million bales on July 31, 2015, and a stocks-to-use ratio of 30.7%.
USDA released 2015-16 projections during their Agricultural Outlook Forum. U.S. production is estimated to be 14.00 million bales for 2015-16. Mill use is set at 3.75 million bales while exports are reported to decrease to 10.20 million bales. The estimated total offtake stands at 13.95 million bales. With beginning stocks of 4.40 million bales, this would result in U.S. ending stocks of 4.50 million bales on July 31, 2016, and a stocks-to-use ratio of 32.3%.
WORLD SUPPLY & DEMAND – In USDA's April report, world production is estimated at 119.2 million bales for the 2014/15 crop year. Mill use is set at roughly 111.1 million bales. With beginning stocks of 101.8 million bales, this would result in world ending stocks of roughly 110.09 million bales on July 31, 2015, and a stocks-to-use ratio of 99.1%.
USDA released 2015-16 world projections during their Agricultural Outlook Forum. World production is estimated at 113.00 million bales for the 2015-16 crop year. Mill use is set at 116.00 million bales. With beginning stocks of 110.09 million bales, this would result in world ending stocks of 107.09 million bales on July 31, 2016, and a stocks-to-use ratio of 92.3%.