Thank you Mr. Chairman. It has been an extraordinarily difficult year for all in the U.S. cotton industry. When we last met for Council?s 2001 Annual Meeting, there was a sense of cautious optimism as both the U.S. and world cotton markets seemed to be on the mend after 3 years of struggle. Subsequent events, however, have revealed that optimism to be misplaced and the industry now finds its very existence imperiled. It is indeed a dire situation for the entire U.S. cotton industry. And, it is within that context that we look forward to the 2002 crop.
Let?s begin with a recap of the 2001 crop. According to USDA, U.S. farmers planted 15.8 million acres of cotton in 2001, an increase of less than 2% from the previous year and belying some expectations of a far larger increase. Upland area increased 1.2% to 15.5 million acres, led by a 17% increase in the Mid-South. Upland area in the Southeast increased just over 1%. Growers in the Southwest reduced upland area 6% and a reduction of over 10% occurred in the West.
ELS plantings rose sharply as acreage was shifted back into upland cotton. Total ELS area increased rose 53% to about 261,000 acres. California accounted for much of the decrease as growers increased ELS area 59% to 230,000 acres.
Over the past 5 years abandonment has averaged about 12%, slightly higher than normal due to repeated droughts. The 2001 season was again no exception with growers abandoning 12.5% of their planted acres, leaving 13.8 million acres for harvest. As usual Texas accounted for much of the abandonment with growers abandoning 1.8 million acres of cotton in 2001.
After 3 consecutive crops faced with adverse growing condition, the 2001 season was generally beneficial for cotton. As a result, the national average yield for 2001 is 698 pounds per harvested acre, about 50 pounds higher than the preceding 5-year average. The average upland yield of 687 pounds is 45 pounds above the 5-year average. The estimated ELS yield of 1,257 pounds is 220 pounds above its 5-year average. Upland yields were significantly above average in all states of the Southeast. In the Mid-South, however, the crops were a mixed bag with yields in the northern tier of states higher than average while the converse is true in the southern tier. In California, the 2001 yield is significantly higher than average while being approximately equal to the 5-year average in Texas.
USDA?s latest estimate places the 2001 U.S. cotton crop at 20.1 million bales, besting the previous record of 19.7 million bales established in 1994. The upland crop is an estimated 19.4 million bales. The Mid-South accounted for 36% of the upland crop, followed by the Southeast at 28%, the Southwest 23% and the West 13%.
The ELS crop of 678,000 bales represents an increase of 289,000 from the previous year. The bulk of the increase occurred in California which produced 620,000 bales, up from 346,000 the previous year.
Let?s now take a look at crop prospects for 2002, beginning with the farm bill. The FAIR Act is scheduled to expire with the 2002 crop. However, the prolonged farm crisis and the glaring inadequacies of the FAIR Act have opened the possibility of new farm legislation for the 2002 crop. The House has already passed new farm legislation. In the Senate, the farm bill is one of the first items on the agenda as it returns from break. There is obviously a great deal of uncertainty regarding the farm program environment for 2002. This uncertainty has introduced significant additional complexity into the production decisions of farmers for 2002.
Let?s now take a look at price prospects for the coming crop. As calendar 2002 begins, December 2002 New York futures are trading at about 44 cents. The December 2002 contract has traded at significantly lower values than the December 2001 contract at comparable points in their history. Over the past 5 months, in fact, December 2002 has averaged some 22 cents less than December 2001 for the comparable period.
It is only in the past few months that September 2002 corn futures have fallen below those of the September 2001 contract and are currently trading at a discount of about 20 cents/bushel. However, even with the recent slide September 2002 futures would suggest a cash price for corn well in excess of the loan rate of $1.89/bushel.
In comparison, November 2002 soybean futures have traded significantly below the November 2001 contract and the spread currently stands at about 50 cents/bushel.
As growers consider their 2002 planting decisions, they are faced with considerable uncertainty about pricing prospects for cotton and alternative crops. Cotton prices have fallen precipitously and would be consistent with a grower return of loan value or just slightly better for the 2002 crop. And, there is the continued uncertainty about farm policy for the 2002 crop.
Let?s now take a look at the results of the Councils? annual planting intentions survey. In the Southeast survey results indicate a 3.1% decrease in the region?s upland acreage to 3.5 million. The largest decrease is expected in Georgia where growers indicate a reduction of 6.8% to 1.4 million acres. A decrease of 5.6% to 99,000 acres is indicated in Virginia and growers in South Carolina intend a 5.0% decrease to 285,000 acres. A 1.4% reduction to 601,000 acres is indicated in Alabama. In contrast, growers in North Carolina intend to increase plantings by 1.2% to 981,000 acres and growers in Florida intend to plant 128,000 acres in 2002, an increase of 5.1% from the previous year.
In the Mid-South, survey results indicate that a significant reduction is intended. Growers in the region intend to plant 3.68 million acres in 2002, a decrease of 19.9% from 2001. The largest decrease is indicated for Louisiana where growers intend to reduce upland area 30.6% to 603,000 acres. A decrease of 29.4% to 1.14 million acres is indicated for Mississippi. It should be noted that Louisiana and Mississippi accounted for much of the expansion in 2001; intended acreage for 2002 is largely consistent with recent averages. A decrease of 14.1% to 532,000 is indicated for Tennessee and an 8.0% reduction to 994,000 acres is indicated in Arkansas. In Missouri survey results indicate a 1.1% increase from 2001, placing upland area at 410,000 acres.
Survey results indicate that growers in the Southwest intend to increase upland area by 1.6% to 6.42 million acres in 2001. Texas growers intend to plant 6.15 million acres in 2002, an increase of 2.5% from the previous year. A decrease of 14.1% to 232,000 acres is indicated for Oklahoma. In Kansas growers indicate a reduction of almost 24% to 32,000 acres. However, many reports suggest that cotton acreage in Kansas will increase yet again.
A decrease in upland area of 11.6% to 893,000 acres is indicated by growers in the West. In California, intended area of 581,000 acres represents a 9.2% decline from the previous year. It appears that much of this acreage is being shifted to crops other than cotton, given that the state?s ELS acreage is also expected to decline. Growers in Arizona intend to decrease upland area by 13.5% to 255,000 acres while a 24.8% decline to 56,000 acres is indicated for New Mexico.
With ELS prices around 80 cents/lb., ELS cotton is not attracting upland acreage as has occurred in previous years. As a result, survey results indicate that U.S. cotton growers intend to reduce ELS plantings 5.3% to 247,000 acres in 2002. In California, intended ELS area of 202,000 acres represents a 12.0% decrease from the previous year. This decline is somewhat offset by acreage increases for the other ELS producing states.
Bringing together the upland and ELS cotton intentions shows U.S. all-cotton plantings in 2001 of 14.7 million acres, 6.7% lower than the previous year.
Assuming an abandonment rate equal to the 5-year average, harvested area would be approximately 12.9 million acres.
Applying each state?s 5-year average yield to its 2002 projected harvested acres generates a crop size of 17.1 million bales, 16.6 million bales of upland cotton and 535,000 bales of ELS cotton. Allowing for moderate yield and abandonment variations suggests a reasonable production interval of 13.9 million to 20.3 million bales.
Combining projected production with expected carryover of 8.8 million bales gives a total U.S. supply of 25.7 million bales.
For cottonseed, multiplying the point forecast of lint production by the average lint-seed ratio generates expected production of about 6.57 million tons. Allowing for moderate yield variations generates a reasonable production interval of 5.1 million to 7.6 million tons. Given about 640,000 tons in beginning stocks and production of 6.5 million tons, gives 2002 cottonseed supply of 7.1 million tons.
Mr. Chairman, this concludes my report on the 2002 planting intentions of U.S. cotton growers.
