Prepared by:
Economic Services - National Cotton Council
June 2010
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 5.6 percent in the fourth quarter of 2009 and increased at an annual rate of 3.0 percent in the first quarter of 2010.
OK-WTX CRUDE OIL SPOT PRICE – Since the end of September 2008, prices have fallen below the $100 per barrel mark. Currently, prices are hovering between $70.00 and $77.00 per barrel.
#2 DIESEL FUEL RETAIL PRICE – Diesel prices have followed the same trend as that of crude oil prices. The current retail price for #2 diesel fuel is roughly $2.00 per gallon.
UNEMPLOYMENT RATE –The unemployment rate is 9.7% for May, down from 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 fall to $980 billion in 2011. Deficits persist through 2018.
CBO AG BASELINE SPENDING – Looking at fiscal 2010 through 2013, commodity programs are expected to costs between $7.5 and 9.6 billion per year, with conservation programs adding an additional $4.0 to $6.0 billion per year. Within commodity support, cotton outlays average about $1.5 billion per year.
WORLD REAL GDP GROWTH –The International Monetary Fund estimates that the world economy will decline by 0.60 percent in 2009 as a whole before rising during the course of 2010. China’s economy is expected to increase from 8.70% growth in 2009 to 10.00% growth in 2010. Estimates for India show GDP growth of 5.70% for 2009 and continued growth in 2010 to 8.80%.
PERCENT CHANGE IN VALUE OF U.S. DOLLAR - During 2009, the U.S. dollar depreciated against the euro, reversing its appreciation that occurred during the previous few months. However, since the beginning of the 2010, it looks like the dollar is once again gaining ground against the euro.
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 slightly above 100.
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 150. The index of livestock prices is up from last month at 132.
NET FARM INCOME –Net farm income is forecast to be $63 billion in 2010, up $6.7 billion (11.8 percent) from 2009. The 2010 forecast is $1.4 billion below the average of $64.5 billion in net farm income earned in the previous 10 years. Still, the $63 billion forecast for 2010 remains the fifth largest amount of income earned in U.S. farming.
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 2010 contract has averaged over 14.50 cents per pound higher than the December 2009 contract. Currently, the 2010 contract sits at roughly 80.00 cents per pound.
DEC CORN FUTURES - Between August 1, 2009 and mid-June 2010, the average value of the December 2010 futures contract was roughly $0.62 per bushel lower than the December 2009 contract.
NOV SOYBEAN FUTURES - Over the life of each contract, the November 2010 soybean contract has averaged roughly $0.40 per bushel lower than the November 2009 contract.
U.S. COTTON ACREAGE– USDA expects U.S. producers to plant 10.51 million acres of cotton in 2010/11, up 14.8% from the previous year. Upland area is projected to be 10.32 million acres, up 14.5% from 2009/10 while ELS area is projected at 190,000 acres, a 34.4% increase. The NCC’s planting intention survey, released in early February, indicated U.S. farmers intend to plant 9.92 million acres of upland cotton and 176,000 acres of ELS cotton.
Projected upland area in the Southeast of 2.39 million acres represents an increase of 26.4% from the previous year. In the Mid-South, projected plantings of 1.73 million acres represent an increase of 6.3%. The largest acreage increase is expected to be seen in the Southwest in Texaswhere producers intend to plant over 600,000 more acres of upland cotton than planted in 2009/10. Out West, producers intend to plant 320,000 acres of upland cotton, up 29.5% from last year.
U.S. COTTON PRODUCTION – In its June report, for 2008, the USDA forecast U.S. production at 12.8 million bales. A slight drop is projected for the 2009 crop with production falling 630,000 bales to 12.2 million bales. U.S. production is estimated to be 16.70 million bales for 2010/11.
U.S. COTTON SUPPLY – IntheJune report, USDA estimates production at 12.8 million and beginning stocks of 10.1 for the 2008 crop year. Combined with imports this gives total supplies of 22.9 million bales for the 2008/09 marketing year
By adding beginning stocks of 6.3 million bales to the roughly 12.2 million bale crop, USDA believes total U.S. supply will drop roughly 4.3 million bales to 18.5 million bales in 2009.
For the 2010 crop year, combining projected production of 16.7 million bales with expected beginning stocks of 2.9 million bales results in a total U.S. supply of 19.6 million bales. This is up 1.1 million bales from the 2009 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 2009 was 43.0 million bale equivalents. Cotton’s share of net domestic consumption decreased 1.0% this past year to 43.0%, which translates to 18.6 million bales. As for 2010, NCC projects net domestic consumption of all fibers to increase to 45.9 million bales. With a projected share of 43.1%, cotton’s net domestic consumption is projected to be 19.8 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 had generally been on the rise. 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 has fallen back to just over 43%.
U.S. RETAIL COTTON CONSUMPTION (HISTORICAL) - Imported goods make up the largest portion of U.S. net domestic consumption. However, for the second time since 2001, imported cotton textiles declined from 20.5 million bale equivalents in 2008 to an estimated 18.4 million in 2009.
U.S. COTTON TEXTILE IMPORTS - Increasing imports over the past several years have devastated the U.S. textile and apparel industries. While cotton textile imports did not increase in calendar 2009, they still made up almost 99% of U.S. net domestic consumption of cotton. Imports of cotton goods in 2009 are estimated to have diminished by over 10.0% to 18.4 million bale equivalents. In calendar 2010, NCC projects cotton textile imports to increase to 19.5 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 2009 contained U.S. cotton. This is a 1.2% decrease over the previous year. In bale equivalents, these imported cotton goods contained over 4.9 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 2009 are estimated at 1.3 million bales, down approximately 13.7% from the previous year. This marks the ninth straight year in which imports from Mexico have declined.
COTTON TEXTILE TRADE WITH CBI – Imported cotton goods from CBI for the year are estimated at 2.3 million bale equivalents, down 21.9% from the previous year.
COTTON TEXTILE IMPORTS FROM CHINA (HISTORICAL) - For the fifth consecutive year, China was the largest supplier of cotton textile imports into the U.S. Also, China was one of the few countries who showed an increase in their cotton product imports into the U.S. in 2009 compared to 2008. Total cotton product imports from China increased slightly to an estimated 5.8 million bale equivalents in 2009, up 7.3% from 2008 and up 600.9% from 2001 when China entered the WTO. China’s share of imported cotton goods in the U.S. market accelerated from 11.3% in 2004, 21.2% in 2005, 25.6% in 2006, 30.2% in 2007, and 29.5% in 2008 to 31.3% in 2009.
CALENDAR MILL USE - Mill use of cotton declined for the twelfth consecutive year in calendar 2009 and is 3.3million bales, 24.4% below the amount consumed in 2008. For calendar 2010, NCC forecasts domestic mill use of cotton at 3.5 million bales.
CROP YEAR MILL USE – USDA’s latest estimate for mill use in the 2008 crop year is 3.6 million bales. Current estimates are 3.4 million bales for the 2009 crop year. Mill use is projected to fall to 3.3 million bales in 2010.
U.S. COTTON PRODUCTION & USE- Looking at the 2008 year, USDA expects exports to be roughly 13.3 million bales while both U.S. production and mill use continue to fall. For 2009, USDA expects exports, mill use and production to continue to fall. U.S. production is estimated to be 16.7 million bales for 2010/11. Mill use is set at 3.3 million bales while exports are reported to increase to 13.5 million bales.
WORLD MARKET – Exports of U.S. cotton will be dependent on conditions in the world market.
CHINA COTTON SUPPLY & USE – For 2008, USDA estimates that Chinese mill use will be 44.00 million bales.
For ’08, USDA forecasts production will be roughly 36.7 million bales. These projections imply a good size differential between production and mill use, leading to imports of 7.0 million bales.
Looking forward for China, production is expected to drop to 32.5 million bales for the 2009 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 47.5 million bales. For 2010, production will climb to 33.0 million bales while mill use climbs to 49.0 million bales.
WORLD COTTON PRODUCTION - USDA estimates put the 2008 crop at 107.5 million bales and 102.9 million bales for the 2009 crop. USDA estimates for 2010/11 show world production at 114.3 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 147 million bales. This is over 34.5 million bales above their estimate of the consumption of cotton. For 2010, PCI estimates polyester consumption to rise to approximately 152 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 the level of manmade fiber prices. Currently, cotton prices are roughly $0.28 cents above manmade fiber prices.
WORLD COTTON MILL USE – In its June report, USDA estimates 2008 world mill use at 109.9 million bales and 116.4 million bales for the 2009 crop year. For crop year 2010 mill use is set at 119.5 million bales.
FOREIGN PRODUCTION & USE – The gap between foreign production and use influences our ability to export cotton. For ’08, foreign production is forecast at 94.6 million bales with mill use outside of the U.S. estimated at 106.4 million bales. The gap widens between production and consumption in 2009 with production forecast at 90.7 million bales and mill use at 113.0 million bales. For the 2010 crop year, production is estimated at 97.6 million bales and mill use at 116.2.
U.S. COTTON EXPORTS – According to USDA, exports fall in the 2008 to 13.3 million bales and continue to fall in 2009 to 12.3 million bales. For 2010, exports are reported to increase to 13.5 million bales.
WORLD ENDING STOCKS - World stocks on July 31, 2009 are projected to reach 62.7 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 fall to 52.2 million bales by the end of the 2009 marketing year. By the end of the 2010 marketing year, stocks are estimated to be roughly 49.6 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 56% for the 2005 marketing year and 58% for 2006. For 2007, the ratio is projected to remain at 58%. In 2008, the stocks to use ratio should be somewhere around 61% and 46% in 2009. For 2010, the stocks to use ratio is estimated to fall to 44%.
U.S. SUPPLY & DEMAND – In its June report, USDA gauged U.S. 2009/10 cotton production at 12.2 million bales. Mill use was estimated at 3.4 million bales and exports were raised to 12.3 million bales. The estimated total offtake now stands at 15.7 million bales generating ending stocks of 2.9 million bales and a stocks-to-use ratio of 18.5%.
U.S. production is estimated to be 16.7 million bales for 2010/11. Mill use is set at 3.3 million bales while exports are reported to increase to 13.5 million bales. The estimated total offtake stands at 16.8 million bales. With beginning stocks of 2.9 million bales, this would result in U.S. ending stocks of 2.8 million bales on July 31, 2011, and a stocks-to-use ratio of 16.7%.
WORLD SUPPLY & DEMAND – In USDA’s June report, world production for the 2009/10 marketing year was estimated to be 102.9 million bales. World mill use was estimated at 116.4 million bales. Consequently, world ending stocks are estimated to be 52.2 million bales with a stocks-to-use ratio of 44.8%.
World production is estimated at 114.3 million bales for the 2010/11 crop year. Mill use is set at 119.5 million bales. With beginning stocks of 52.2 million bales, this would result in world ending stocks of 49.6 million bales on July 31, 2011, and a stocks-to-use ratio of 41.5%.