Monthly Economic Outlook

Print Version


Prepared by:
Economic Services - National Cotton Council
May 2015

number of bales / 4.59

number of acres * 0.40469

MACROECONOMIC ENVIRONMENTLet'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 2.2 percent in the final quarter of 2014. Estimates from the Bureau of Economic Analysis show an increase of 0.2 percent in the first quarter of 2015.

OK-WTX CRUDE OIL SPOT PRICE – Since the beginning of the year, prices have fluctuated between $40.00 and $60.00 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 May was just under $2.00 per gallon.

UNEMPLOYMENT RATEThe unemployment rate is 5.4% for April, down slightly from the previous month's unemployment rate.

FEDERAL BUDGET SURPLUSThe 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 GROWTHThe International Monetary Fund estimates that the world economy grew 3.40% during the course of 2013. China's economy was expected to increase 7.80% in 2013. Estimates for India show GDP growth of 6.90% for 2013. For 2014, the world economy continued to grow at 3.40%. China's economy was expected to climb 7.40% in 2014 while estimates for India show GDP growth of 7.20%. 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 0.89 per dollar.

EXCHANGE RATE INDEXThe 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 98.

AG PRICES RECEIVEDThe U.S. Department of Agriculture (USDA) publishes indices of prices received by farmers. The latest index of crop prices is 86. The index of livestock prices was up to 117.

NET FARM INCOMENet 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 SUPPLYHaving 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 just over 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 $0.72 per bushellower than the December 2014 contract.

NOV SOYBEAN FUTURES - Over the life of each contract, the November 2015 soybean contract has averaged roughly $1.80 per bushel lower than the November 2014 contract.

U.S. COTTON ACREAGEUSDA'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 May report, for 2013, the USDA forecast U.S. production at 12.9 million bales. An increase of roughly 3.4 million bales is projected for the 2014 crop with production climbing to 16.3 million bales. U.S. production is estimated to be 14.5 million bales for 2015/16.

U.S. COTTON SUPPLYIntheMay report, USDA estimates production at 12.9 million and beginning stocks of roughly 3.8 million for the 2013 crop year. Combined with imports this gives total supplies of 16.7 million bales for the 2013/14 marketing year.

By adding beginning stocks of 2.5 million bales to the 16.3 million bale crop, USDA believes total U.S. supply will climb roughly 2.0 million bales to 18.8 million bales in 2014.

For the 2015 crop year, combining projected production of 14.5 million bales with expected beginning stocks of 4.4 million bales results in a total U.S. supply of 18.9 million bales. This is up roughly 130,000 bales from the 2014 level.

U.S. COTTON DEMANDMoving 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 was 47.8 million bale equivalents. Cotton's share of net domestic consumption decreased 1.5% this past year to 36.2%, which translates to 17.3 million bales. For 2015, NCC projects net domestic consumption of all fibers to increase to 49.0 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 CONSUMPTIONWhile 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 2014.Cotton's share of the retail market was 36.2% in 2014.

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 March shows us running slightly ahead of last year's pace by approximately 50,000 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 17.5 million in 2014

U.S. COTTON TEXTILE IMPORTS - Imports of cotton goods in calendar 2014 decreased by 0.8% to 17.5 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 0.08% decrease 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 1.1 million bales, down approximately 0.9% from the previous year.

COTTON TEXTILE TRADE WITH CBIImported cotton goods from CBI for the year were 2.3 million bale equivalents, up 3.3% 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 5.6 million bale equivalents in 2014, down 3.6% from 2013 and up by approximately 316% 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 31.9% in 2014.

CALENDAR MILL USE Mill use of cotton decreased from the previous year to 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 USEUSDA's latest estimate for mill use in the 2013 crop year is 3.6 million bales. The USDA estimates 2014 crop year mill use at 3.7 million bales. For 2015, USDA projects domestic mill use of cotton at 3.8 million bales.

U.S. COTTON PRODUCTION & USE - Looking at the 2013 crop year, USDA estimates exports at roughly 10.5 million bales while U.S. production is estimated at 12.9 million bales and mill use is estimated to be 3.6 million bales.For 2014, exports climb slightly to 10.7 million bales while mill use is expected to climb to 3.7 million bales.Production is expected to grow.USDA estimates U.S. production to be 16.3 million bales for 2014/15. For 2015, mill use is expected to reach 3.8 million bales, up from the previous year while production is expected fall to 14.5 million bales and exports are expected to remain unchanged at 10.7 million bales.

WORLD MARKET Exports of U.S. cotton will be dependent on conditions in the world market.

CHINA COTTON SUPPLY & USEFor China, production is expected to be 32.8 million bales for the 2013 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 34.5 million bales.For 2014, production will fall to 30.0 million bales while mill use climbs back to 35.0 million bales.For the 2015 crop year, USDA projects production to drop to the 27.0 million bale range while mill use climbs back to the 36.0 million bale range.

WORLD COTTON PRODUCTION - USDA estimates put the 2013 crop at 120.4 million bales and 119.3 million bales for the 2014 crop.USDA estimates for 2015/16 show world production at roughly 111.3 million bales.

WORLD FIBER DEMANDThe 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 May report, USDA estimates 2013 world mill use at 109.1 million bales and 111.5 million bales for the 2014 crop year.For crop year 2015 mill use is set at roughly 115.3 million bales.

FOREIGN PRODUCTION & USEThe gap between foreign production and use influences our ability to export cotton.The gap narrows between production and consumption in 2013 with production forecast at 107.5 million bales and mill use at 105.5 million bales.For the 2014 crop year, production is estimated at 103.0 million bales and mill use at 107.8 million bales.For the 2015 crop year, production is estimated at 96.8 million bales and mill use at 111.5 million bales.

U.S. COTTON EXPORTS According to USDA, the U.S. will export 10.5 million bales in the 2013 crop year.In 2014, exports climb to 10.7 million bales. For 2015, exports remain unchanged at an estimated 10.7 million bale mark.   

WORLD ENDING STOCKS - World stocks on July 31, 2014 are projected to reach 102.4 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 110.3 million bales by the end of the 2014 marketing year.By the end of the 2015 marketing year, stocks are estimated to fall to 106.3 million bales.

COTTON STOCKS/USEAnother 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 increase slightly to 58%.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 58%.For the 2011 marketing year, the ratio is expected to climb to 65% and falls to 56% in the 2012 marketing year and is expected to drop to 53% through the 2013 marketing year. For 2014, the ratio is forecast to climb to 59%. The ratio is forecast to fall to 56% in 2015.

U.S. SUPPLY & DEMANDIn its May 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%.

For the 2015 crop year, U.S. production is estimated to be 14.50 million bales for 2015-16. Mill use is set at 3.80 million bales while exports are reported to be 10.70 million bales. The estimated total offtake stands at 14.50 million bales. With beginning stocks of 4.40 million bales, this would result in U.S. ending stocks of 4.40 million bales on July 31, 2016, and a stocks-to-use ratio of 30.3%.

WORLD SUPPLY & DEMANDIn USDA's May report, world production is estimated at 119.3 million bales for the 2014/15 crop year.Mill use is set at roughly 111.5 million bales. With beginning stocks of 102.4 million bales, this would result in world ending stocks of roughly 110.3 million bales on July 31, 2015, and a stocks-to-use ratio of 98.9%.

World production is estimated at 111.3 million bales for the 2015-16 crop year. Mill use is set at 115.3 million bales. With beginning stocks of 110.3 million bales, this would result in world ending stocks of 106.3 million bales on July 31, 2016, and a stocks-to-use ratio of 92.2%.