Monthly Economic Outlook

Print Version


Prepared by:
Economic Services - National Cotton Council
March 2016

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 2.0 percent in the third quarter of 2015. Estimates from the Bureau of Economic Analysis show an increase of 1.4 percent in the fourth quarter of 2015.

OK-WTX CRUDE OIL SPOT PRICE – Since the beginning of the year, prices have fluctuated between $26.00 and $42.00 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 March was over $1.00 per gallon.

UNEMPLOYMENT RATEThe unemployment rate is 5.0% for March, up 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 '16, CBO projects a deficit of roughly $534 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 2014. China's economy was expected to increase 7.30% in 2014.Estimates for India show GDP growth of 7.30% for 2014. For 2015, the world economy continued to grow at 3.10%.China's economy was expected to climb 6.90% in 2015 while estimates for India also show GDP growth of 7.30%.For 2016, world GDP continues to climb at a rate of 3.40% while the U.S., Indian and Chinese economic sectors are expected to continue to grow.

PERCENT CHANGE IN VALUE OF U.S. DOLLAR - Currently, the euro is averaging 0.88 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 105.

AG PRICES RECEIVEDThe U.S. Department of Agriculture (USDA) publishes indices of prices received by farmers. The latest index of crop prices is 84.2.The index of livestock prices fell to 99.6.

NET FARM INCOMEBoth net cash and net farm income are forecast to decline for the third consecutive year after reaching recent highs in 2013 for net farm income and 2012 for net cash income. Net cash farm income is expected to fall by 2.5 percent in 2016, while net farm income is forecast to decline by 3 percent. These declines are moderate compared to the 27- and 38-percent reductions in net cash income and net farm income, respectively, that occurred in 2015.

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 2016 contract has averaged over three cents per pound lower than the December 2015 contract.

DEC CORN FUTURES - Over the life of each contract, the average value of the December 2016 futures contract has been roughly $0.16 per bushel lower than the December 2015 contract.

NOV SOYBEAN FUTURES - Over the life of each contract, the November 2016 soybean contract has averaged roughly $1.04 per bushel lower than the November 2015 contract.

U.S. COTTON ACREAGEUSDA's Prospective Plantings Report show 2016-17 U.S. cotton plantings at 9.56 million acres, up 11.4% from 2015. Upland planted area is estimated to have increased 11.0% to 9.35 million acres. ELS cotton producers are expected to plant 215,000 acres, up 35.6%.

U.S. COTTON PRODUCTION – In its March 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 12.9 million bales for 2015/16.

U.S. COTTON SUPPLYIntheMarch 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 2.4 million bales to the 16.3 million bale crop, USDA believes total U.S. supply will climb roughly 2.0 million bales to 18.7 million bales in 2014.

For the 2015 crop year, combining projected production of 12.9 million bales with expected beginning stocks of 3.7 million bales results in a total U.S. supply of 16.7 million bales. This is down roughly 2.0 million bales from the 2014 level.

U.S. COTTON DEMANDMoving along, we'll focus on U.S. cotton demand.

U.S. RETAIL FIBER CONSUMPTIONNet 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 2015 is estimated to be 50.9 million bale equivalents. Cotton's share of net domestic consumption decreased 0.9% this past year to 35.2%, which translates to 18.1 million bales. For 2016, NCC projects net domestic consumption of all fibers to increase to 53.1 million bales. With a projected share of 34.9%, cotton's net domestic consumption is projected to be 18.5 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 2015.Cotton's share of the retail market was 35.5% in 2015.

U.S. RETAIL COTTON CONSUMPTION (MONTHLY) – The U.S. retail market reached 18.1 million bales of cotton textile products for calendar 2015.Data through January shows us running ahead of last year's pace by approximately roughly 96,400 bales.

U.S. RETAIL COTTON CONSUMPTION (HISTORICAL) - Imported goods make up the largest portion of U.S. net domestic consumption. Imported cotton textiles increased from 17.5 million bale equivalents in 2014 to an estimated 18.3 million in 2015.

U.S. COTTON TEXTILE IMPORTS - Imports of cotton goods in calendar 2015 were estimated to have increased by 4.9% to 18.3 million bale equivalents. In calendar 2016, NCC projects cotton textile imports to increase to 18.8 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 27.0% of all cotton goods imported in 2015 contained U.S. cotton. This is a 0.62% decrease over the previous year. In bale equivalents, these imported cotton goods contained 5.0 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 2015 were estimated at 1.1 million bales, down approximately 4.4% from the previous year.

COTTON TEXTILE TRADE WITH CBIImported cotton goods from CBI for the year were estimated at 2.5 million bale equivalents up 6.0% from the previous year.

COTTON TEXTILE IMPORTS FROM CHINA- For the eleventh consecutive year, China was the largest supplier of cotton textile imports into the U.S. Total cotton product imports from China increased to an estimated 5.8 million bale equivalents in 2015, up 4.0% from 2014 and up by approximately 617% 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 32.1% in 2015.

CALENDAR MILL USE Mill use of cotton increased from the previous year to 3.56 million bales in calendar 2015, 1.1% higher than 2014. For calendar 2016, NCC forecasts domestic mill use of cotton at 3.63 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 3.6 million bales. For 2015, USDA projects domestic mill use of cotton at 3.6 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 11.3 million bales while mill use is expected to remain unchanged at 3.6 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 remain unchanged at 3.6 million bales while production is expected fall to 12.9 million bales and exports are expected to dip to 9.5 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 falls back to 33.0 million bales. For the 2015 crop year, USDA projects production to drop to the 23.8 million bale range while mill use falls to 32.0 million bales.

WORLD COTTON PRODUCTION - US DA estimates put the 2013 crop at 120.4 million bales and roughly 119.2 million bales for the 2014 crop. USDA estimates for 2015/16 show world production at roughly 100.2 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 – Since 2004, cotton prices have worked their way back to and above the level of manmade fiber prices.

WORLD COTTON MILL USE In its March report, USDA estimates 2013 world mill use at 109.9 million bales and 110.3 million bales for the 2014 crop year. For crop year 2015 mill use is set at roughly 109.2 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 106.4 million bales. For the 2014 crop year, production is estimated at 102.8 million bales and mill use at 106.8 million bales. For the 2015 crop year, production is estimated at 87.3 million bales and mill use at 105.6 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 11.3 million bales. For 2015, exports drop to an estimated 9.5 million bale mark.   

WORLD ENDING STOCKS - World stocks on July 31, 2014 are projected to reach 103.1 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 112.2 million bales by the end of the 2014 marketing year. By the end of the 2015 marketing year, stocks are estimated to fall to 103.3 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 45%. The larger '04 crop pushed that ratio back up to 60%. The ratio is estimated at 55% for the 2005 marketing year and 58% for 2006.For 2007, the ratio is projected to remain unchanged at 58%.In 2008, the stocks-to-use ratio should be somewhere around 62% and 48% in 2009.For 2010, the stocks-to-use ratio is estimated to climb to 59%.For the 2011 marketing year, the ratio is expected to climb to 66% and falls to 57% in the 2012 marketing year and is expected to drop to 54% through the 2013 marketing year. For 2014, the ratio is forecast to climb to 57%. The ratio is forecast to fall to 50% in 2015.

U.S. SUPPLY & DEMANDIn its March report, U.S. production is estimated to be 12.9 million bales for 2015/16. Mill use is estimated at 3.6 million bales while exports are reported to be 9.5 million bales. The estimated total offtake stands at 13.1 million bales. With beginning stocks of roughly 3.7 million bales, this would result in U.S. ending stocks of 3.6 million bales on July 31, 2016, and a stocks-to-use ratio of 27.5%.

For the 2016 crop year, U.S. production is estimated to be 14.3 million bales. Mill use is set at 3.6 million bales while exports are reported to be 10.7 million bales. The estimated total offtake stands at 14.3 million bales. With beginning stocks of 3.6 million bales, this would result in U.S. ending stocks of 3.6 million bales on July 31, 2017, and a stocks-to-use ratio of 25.2%.

WORLD SUPPLY & DEMANDIn USDA's March report, world production is estimated at 100.2 million bales for the 2015/16 crop year. Mill use is set at roughly 109.2 million bales. With beginning stocks of 112.2 million bales, this would result in world ending stocks of roughly 103.3 million bales on July 31, 2016, and a stocks-to-use ratio of 94.6%.

World production is estimated at 105.5 million bales for the 2016-17 crop year. Mill use is set at 110.5 million bales. With beginning stocks of 103.3 million bales, this would result in world ending stocks of 98.3 million bales on July 31, 2017, and a stocks-to-use ratio of 89.0%.