Monthly Economic Outlook

Print Version

 

Prepared by:
Economic Services - National Cotton Council
April 2013

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 0.4 percent in the final quarter of 2012. Estimates from the Bureau of Economic Analysis show an increase of 2.5 percent in the first quarter of 2013.

OK-WTX CRUDE OIL SPOT PRICE – Since the beginning of the month, prices have fluctuated between $87.00 and $98.00 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 in late April was roughly $2.80 per gallon.

UNEMPLOYMENT RATE – The unemployment rate is 7.6% for March, down slightly from the previous month's unemployment rate of 7.7%.

FEDERAL BUDGET SURPLUS – The latest projections by the Congressional Budget Office (CBO) show deficits continuing for the next several years. For fiscal '12, CBO projects a deficit of roughly $1.1 trillion. The 2012 deficit comes on the heels of 3 years with annual deficits exceeding $1.0 trillion. Deficits persist through 2020.

CBO AG BASELINE SPENDING – Looking at fiscal 2012 through 2015, commodity programs are expected to costs between $6.0 and $7.2 billion per year, with conservation programs adding an additional $4.7 to $5.6 billion per year.  Within commodity support, cotton outlays average about $713 million per year.

WORLD REAL GDP GROWTH –The International Monetary Fund estimates that the world economy grew 4.00% during the course of 2011. China's economy was expected to increase 9.30% in 2011. Estimates for India show GDP growth of 7.70% for 2011. For 2012, the world economy continued to grow only at a slower pace, 3.20%. The same was true for both China and India. China's economy was expected to climb 7.80% in 2012 while estimates for India show GDP growth of 4.00%. For 2013, world GDP continues to climb at a rate of 3.30% while the U.S., Indian and Chinese economic sector are expected to continue to grow.

PERCENT CHANGE IN VALUE OF U.S. DOLLAR - Since the beginning of 2011, the dollar looked as if it was losing some momentum in terms of value. However, since the end of August 2011, the dollar seems to be regaining some of that lost ground.

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 125 in 2003, but now sits at roughly 93.

AG PRICES RECEIVED – The U.S. Department of Agriculture (USDA) publishes monthly indices of prices received by farmers. The index of crop prices now stands at 240. The index of livestock prices is up from last month at 165.

NET FARM INCOME – Net farm income is forecast to be $128.2 billion in 2013, up nearly 14 percent from 2012's revised forecast of $112.8 billion.

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 2013 contract has averaged roughly 12.00 cents per pound lower than the December 2012 contract.

DEC CORN FUTURES - Over the life of each contract, the average value of the December 2013 futures contract has been roughly $0.19 per bushel higher than the December 2012 contract.

NOV SOYBEAN FUTURES - Over the life of each contract, the November 2013 soybean contract has averaged over $0.38 per bushel higher than the November 2012 contract.

U.S. COTTON ACREAGE– USDA's March Prospective Plantings Report indicates U.S. producers intend to plant 10.03 million acres of cotton in 2013, down 18.6% from the previous year. Upland area is projected to be 9.82 million acres, down 18.7% from 2012 while ELS area is projected at 206,000 acres, a 13.6% decrease.

U.S. COTTON PRODUCTION – In its April report, for 2010, the USDA forecast U.S. production at 18.1 million bales. A drop of roughly 2.5 million bales is projected for the 2011 crop with production falling to 15.6 million bales. U.S. production is estimated to be 17.3 million bales for 2012/13.

U.S. COTTON SUPPLY – IntheAprilreport, USDA estimates production at 18.1 million and beginning stocks of roughly 3.0 million for the 2010 crop year. Combined with imports this gives total supplies of 21.1 million bales for the 2010/11 marketing year.

By adding beginning stocks of 2.6 million bales to the 15.6 million bale crop, USDA believes total U.S. supply will fall roughly 2.9 million bales to 18.2 million bales in 2011.

For the 2012 crop year, combining projected production of 17.3 million bales with expected beginning stocks of 3.4 million bales results in a total U.S. supply of 20.7 million bales. This is up roughly 2.5 million bales from the 2011 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 2012 was 44.8 million bale equivalents. Cotton's share of net domestic consumption decreased 1.4% this past year to 38.0%, which translates to 17.0 million bales. For 2013, NCC projects net domestic consumption of all fibers to increase to 46.9 million bales. With a projected share of 38.0%, cotton's net domestic consumption is projected to be 17.8 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 2007, cotton's share of the retail markets remained roughly unchanged at 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 and 2011 with cotton's share falling to roughly 42.7% and 39.5% respectively. Cotton's share of the retail market declined further in 2012 to 38.0%.

U.S. RETAIL COTTON CONSUMPTION (MONTHLY) – The U.S. retail market reached 17.0 million bales of cotton textile products for calendar 2012. Data through February show us running ahead last year's pace by approximately 216,750 bales. This puts the 2013 retail market slightly over the 17.0 million bale mark.

U.S. RETAIL COTTON CONSUMPTION (HISTORICAL) - Imported goods make up the largest portion of U.S. net domestic consumption. In 2010, the amount of imported cotton textiles was greater than U.S. net domestic consumption of cotton textiles for the first time. This indicates that some of the goods were imported into the U.S. and were then re-exported in another form (i.e. yarn imported and then exported as fabric). Imported cotton textiles decreased from 17.8 million bale equivalents in 2011 to 17.1 million in 2012.

U.S. COTTON TEXTILE IMPORTS - Imports of cotton goods in calendar 2012 decreased by 4.4% to 17.1 million bale equivalents. In calendar 2013, 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 27.2% of all cotton goods imported in 2012 contained U.S. cotton. This is a 1.0% decrease over the previous year. In bale equivalents, these imported cotton goods contained 4.7 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 2012 were 1.1 million bales, down approximately 9.7% from the previous year.

COTTON TEXTILE TRADE WITH CBI – Imported cotton goods from CBI for the year were 2.3 million bale equivalents, down 9.4% from the previous year.

COTTON TEXTILE IMPORTS FROM CHINA (HISTORICAL) - For the eighth consecutive year, China was the largest supplier of cotton textile imports into the U.S. However, total cotton product imports from China decreased to 5.5 million bale equivalents in 2012, down 3.2% from 2011 but up by approximately 575% 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 32.6% in 2012.

CALENDAR MILL USE –Mill use of cotton decreased from the previous year to 3.39 million bales in calendar 2012, 2.1% below 2011. For calendar 2013, NCC forecasts domestic mill use of cotton at 3.50 million bales.

CROP YEAR MILL USE– USDA's latest estimate for mill use in the 2010 crop year is 3.9 million bales. The USDA estimates 2011 crop year mill use at 3.3 million bales. For 2012, USDA projects domestic mill use of cotton at 3.4 million bales.

U.S. COTTON PRODUCTION & USE - Looking at the 2010 crop year, USDA estimates exports at roughly 14.4 million bales while U.S. production is estimated at 18.1 million bales and mill use is estimated to be 3.9 million bales. For 2011, exports, mill use and production are expected to decline. USDA estimates U.S. production to be 15.6 million bales for 2011/12. USDA estimates mill use to be 3.3 million bales while exports are estimated to decrease to 11.7 million bales. For 2012, production, mill use, and exports are expected to increase.

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 drop to 30.5 million bales for the 2010 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 46.0 million bales. For 2011, production will climb back to 33.1 million bales while mill use falls to 38.0 million bales. For the 2012 crop year, USDA projects production to climb to the 35.0 million bale range while mill use continues to fall to 36.0 million bales.

WORLD COTTON PRODUCTION - USDA estimates put the 2010 crop at 116.3 million bales and 124.1 million bales for the 2011 crop. USDA estimates for 2012/13 show world production at roughly 119.7 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 2009, consumption topped 152 million bales. This is over 37.7 million bales above their estimate of the consumption of cotton. For 2012, PCI estimates polyester consumption to rise to approximately 192 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 2010 world mill use at 114.1 million bales and 103.0 million bales for the 2011 crop year. For crop year 2012 mill use is set at roughly 107.4 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 2010 with production forecast at 98.2 million bales and mill use at 110.2 million bales. For the 2011 crop year, production is estimated at 108.5 million bales and mill use at 99.7 million bales. For the 2012 crop year, production is estimated at 102.4 million bales and mill use at 104.0 million bales.

U.S. COTTON EXPORTS – According to USDA, the U.S. will export 14.4 million bales in the 2010 crop year.In 2011, exports fall to 11.7 million bales. For 2012, exports are up to an estimated 13.0 million bale mark.   

WORLD ENDING STOCKS - World stocks on July 31, 2011 are projected to reach 49.4 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 70.2 million bales by the end of the 2011 marketing year.By the end of the 2012 marketing year, stocks are estimated to climb to 82.5 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 unchanged 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 62% and falls to 52% in the 2012 marketing year.

U.S. SUPPLY & DEMAND – In its April report, USDA gauged U.S. 2011/12 cotton production at 15.6 million bales. Mill use was estimated at 3.3 million bales and exports were estimated to be 11.7 million bales. The estimated total offtake now stands at 15.0 million bales generating ending stocks of 3.4 million bales and a stocks-to-use ratio of 22.3%.

U.S. production is estimated to be 17.3 million bales for 2012/13. Mill use is estimated at 3.4 million bales while exports are reported to be 13.0 million bales. The estimated total offtake stands at 16.4 million bales. With beginning stocks of roughly 3.4 million bales, this would result in U.S. ending stocks of 4.2 million bales on July 31, 2013, and a stocks-to-use ratio of 25.6%.

WORLD SUPPLY & DEMAND – In USDA's April report, world production for the 2011/12 marketing year was estimated to be 124.1 million bales. World mill use was estimated at 103.0 million bales. Consequently, world ending stocks are estimated to be 70.2 million bales with a stocks-to-use ratio of 68.1%.

World production is estimated at 119.7 million bales for the 2012/13 crop year. Mill use is set at roughly 107.4 million bales. With beginning stocks of 70.2 million bales, this would result in world ending stocks of roughly 82.5 million bales on July 31, 2013, and a stocks-to-use ratio of 76.7%.