Prepared by:
Economic Services - National Cotton Council
November 2011
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 1.3 percent in the second quarter of 2011 and increased at an annual rate of 2.5 percent in the third quarter of 2011.
OK-WTX CRUDE OIL SPOT PRICE – Since the beginning of the month, prices have been between $92 and $97 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 early November averaged just over $3.00 per gallon.
UNEMPLOYMENT RATE – The unemployment rate is 9.0% for October, slightly lower than the previous month.
FEDERAL BUDGET SURPLUS – The latest projections by the Congressional Budget Office (CBO) show deficits continuing for the next several years.For fiscal '10, CBO projects a deficit of roughly $1.3 trillion.That deficit is projected to remain relatively unchanged at $1.3 trillion in 2011.Deficits persist through 2020.
CBO AG BASELINE SPENDING – Looking at fiscal 2010 through 2013, commodity programs are expected to costs between $6.3 and $8.1 billion per year, with conservation programs adding an additional $3.9 to $5.7 billion per year. Within commodity support, cotton outlays average about $1.0 billion per year.
WORLD REAL GDP GROWTH –The International Monetary Fund estimates that the world economy will decline by 0.70 percent in 2009 as a whole before rising during the course of 2010. China's economy is expected to increase from 9.20% growth in 2009 to 10.30% growth in 2010.Estimates for India show GDP growth of 6.80% for 2009, and continued growth in 2010 to 10.10%.For 2011, the world economy continues to grow only at a slightly slower pace, 4.00%. The same is true for both China and India.China's economy is expected to climb 9.50% in 2011 while estimates for India show GDP growth of 7.80%.
PERCENT CHANGE IN VALUE OF U.S. DOLLAR - Since the beginning of 2011, the dollar had lost 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 above 125 in 2003, but now sits at roughly 97.
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 206.The index of livestock prices is up from last month to 153.
NET FARM INCOME – Net farm income is forecast at $103.6 billion for 2011, up $24.5 billion for a rise of 31 percent from 2010.The 2011 forecast of net farm income is the highest inflation-adjusted value recorded since 1974.
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 2011 contracthas averaged roughly 25.00 cents per pound higher than the December 2010 contract.
DEC CORN FUTURES - Over the life of each contract, the average value of the December 2011 futures contract was roughly $1.75 per bushel higher than the December 2010 contract.
NOV SOYBEAN FUTURES - Over the life of each contract, the November 2011 soybean contract has averaged roughly $2.75 per bushel higher than the November 2010 contract.
U.S. COTTON ACREAGE– USDA's revised June Acreage Report indicates U.S. producers intend to plant 14.72 million acres of cotton in 2011/12, up 34.1% from the previous year.Upland area is projected to be 14.43 million acres, up 34.0% from 2010/11 while ELS area is projected at 289,000 acres, a 41.5% increase.
U.S. COTTON PRODUCTION – In its November report, for 2009, the USDA forecast U.S. production at 12.2 million bales.An increase of almost 6.0 million bales is projected for the 2010 crop with production climbing to 18.1 million bales.U.S. production is estimated to be 16.3 million bales for 2011/12.
U.S. COTTON SUPPLY – IntheNovember report, USDA estimates production at 12.2 million and beginning stocks of 6.3 for the 2009 crop year.Combined with imports this gives total supplies of 18.5 million bales for the 2009/10 marketing year.
By adding beginning stocks of 3.0 million bales to the roughly 18.1 million bale crop, USDA believes total U.S. supply will grow roughly 2.5 million bales to 21.1 million bales in 2010.
For the 2011 crop year, combining projected production of 16.3 million bales with expected beginning stocks of 2.6 million bales results in a total U.S. supply of 18.9 million bales. This is down roughly 2.1 million bales from the 2010 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 2010 was 47.8 million bale equivalents. Cotton's share of net domestic consumption decreased 0.9% this past year to 42.7%, which translates to 20.4 million bales. For 2011, NCC projects net domestic consumption of all fibers to increase to 46.0 million bales. With a projected share of 40.3%, cotton's net domestic consumption is projected to be 18.6 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 with cotton's share falling to roughly 42.7% and is projected to continue in 2011 with cotton's share of the retail market estimated to fall to just over 40.0%.
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 increased from 18.4 million bale equivalents in 2009 to 20.6 million in 2010. For 2011, imported cotton textiles are estimated to fall to roughly 19.0 million bale equivalents.
U.S. COTTON TEXTILE IMPORTS - Increasing imports over the past several years have devastated the U.S. textile and apparel industries. In calendar 2010, cotton textile imports were greater than U.S. net domestic consumption of cotton.Imports of cotton goods in 2010 increased by 11.8% to 20.6 million bale equivalents. In calendar 2011, NCC projects cotton textile imports to fall to roughly 19.0 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 26.8% of all cotton goods imported in 2010 contained U.S. cotton. This is a 0.1% decrease over the previous year. In bale equivalents, these imported cotton goods contained 5.5 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 2010 were 1.3 million bales, up approximately 3.7% from the previous year.
COTTON TEXTILE TRADE WITH CBI – Imported cotton goods from CBI for the year 2010 were 2.6 million bale equivalents, up 11.0% from the previous year.
COTTON TEXTILE IMPORTS FROM CHINA (HISTORICAL) - For the sixth consecutive year, China was the largest supplier of cotton textile imports into the U.S. Total cotton product imports from China increased to 6.9 million bale equivalents in 2010, up 19.7% from 2009 and up more than 739% 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, 18.6% in 2005, 21.5% in 2006, 25.4% in 2007, 26.4% in 2008, and 31.3% in 2009 to 33.6% in 2010.
CALENDAR MILL USE – After twelve consecutive years of decline, mill use of cotton was up an estimated 340,000 bales in calendar 2010 to 3.6million bales.For calendar 2011, NCC forecasts domestic mill use of cotton will be unchanged at 3.6 million bales.
CROP YEAR MILL USE – USDA's latest estimate for mill use in the 2009 crop year is 3.6 million bales. Mill use is projected to increase to roughly 3.9 million bales in 2010. For 2011, mill use will drop to 3.8 million bales.
U.S. COTTON PRODUCTION & USE - Looking at the 2009 crop year, USDA expects exports to be roughly 12.0 million bales while U.S. production is estimated at 12.2 million bales and mill use is estimated to be 3.6 million bales.For 2010, USDA expects exports, mill use and production to continue to grow.U.S. production is estimated to be 18.1 million bales for 2010/11. Mill use is set at 3.9 million bales while exports are reported to increase to 14.4 million bales.For 2011, production, mill use and exports are projected to fall.
WORLD MARKET – Exports of U.S. cotton will be dependent on conditions in the world market.
CHINA COTTON SUPPLY & USE – For 2009, USDA estimates that Chinese mill use will be 50.0 million bales. For '09, USDA forecasts production will be roughly 32.0 million bales.These projections imply a good size differential between production and mill use, leading to imports of 10.9 million bales.
Looking forward 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 33.5 million bales while mill use is basically unchanged at 45.5 million bales.
WORLD COTTON PRODUCTION - USDA estimates put the 2009 crop at 101.6 million bales and 115.3 million bales for the 2010 crop.USDA estimates for 2011/12 show world production at 123.9 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 38.2 million bales above their estimate of the consumption of cotton.For 2011, PCI estimates polyester consumption to rise to approximately 184 million bales.
FIBER PRICES – While manmade fiber prices moved higher, cotton prices weakened substantially as we went through 2004. Since 2004, cotton prices have slowly worked their way back to and above the level of manmade fiber prices.
WORLD COTTON MILL USE – In its November report, USDA estimates 2009 world mill use at 119.1 million bales and 114.4 million bales for the 2010 crop year.For crop year 2011 mill use is set at 114.3 million bales.
FOREIGN PRODUCTION & USE– The gap between foreign production and use influences our ability to export cotton.For '09, foreign production is forecast at 89.4 million bales with mill use outside of the U.S. estimated at 115.6 million bales.The gap narrows between production and consumption in 2010 with production forecast at 97.2 million bales and mill use at 110.5 million bales.For the 2011 crop year, production is estimated at 107.6 million bales and mill use at 110.5 million bales.
U.S. COTTON EXPORTS – According to USDA, exports fall in the 2009 to 12.0 million bales.In 2010 exports climb to 14.4 million bales. For 2011, exports are reported to fall to 11.3 million bales.
WORLD ENDING STOCKS - World stocks on July 31, 2010 are projected to reach 44.2 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 45.2 million bales by the end of the 2010 marketing year.By the end of the 2011 marketing year, stocks are estimated to climb to 55.0 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 fall to 56%.In 2008, the stocks-to-use ratio should be somewhere around 58% and 42% in 2009.For 2010, the stocks-to-use ratio is estimated to climb to 49%.For the 2011 marketing year, the ratio is expected to climb to 60%.
U.S. SUPPLY & DEMAND – In its November report, USDA gauged U.S. 2010/11 cotton production at 18.1 million bales.Mill use was estimated at 3.9 million bales and exports were estimated to be 14.4 million bales. The estimated total offtake now stands at 18.3 million bales generating ending stocks of 2.6 million bales and a stocks-to-use ratio of 14.2%.
U.S. production is estimated to be 16.3 million bales for 2011/12. Mill use is estimated at 3.8 million bales while exports are reported to fall to 11.3 million bales. The estimated total offtake stands at 15.1 million bales. With beginning stocks of roughly 2.6 million bales, this would result in U.S. ending stocks of 3.8 million bales on July 31, 2012, and a stocks-to-use ratio of 25.2%.
WORLD SUPPLY & DEMAND – In USDA's November report, world production for the 2010/11 marketing year was estimated to be 115.3 million bales.World mill use was estimated at 114.4 million bales.Consequently, world ending stocks are estimated to be 45.2 million bales with a stocks-to-use ratio of 39.5%.
World production is estimated at 123.9 million bales for the 2011/12 crop year. Mill use is set at 114.3 million bales. With beginning stocks of 45.2 million bales, this would result in world ending stocks of roughly 55.0 million bales on July 31, 2012, and a stocks-to-use ratio of 48.1%.