Charges of U.S. Overproduction of Cotton Misplaced

MEMPHIS – An expected global cotton production increase - outside of the United States - has pushed down world prices and will exacerbate the economic stress being felt by cotton producers.

That is just one of the assertions to be made by National Cotton Council economist Dr. Gary Adams when he highlights recent trends in production and use in world cotton markets at the Southern-Southeastern Mid-Year Board Meeting in Arlington, VA, on Friday, July 16.

“Based on current expectations, this year’s world cotton crop will be significantly above the previous record of 98.5 million bales set in 2001,” Adams notes in his prepared remarks.

He said recent reports from the USDA and the International Cotton Advisory Committee (ICAC) project a record world cotton crop for 2004. ICAC puts the global crop at 102.0 million bales in 2004 - a nine percent increase over 2003, while USDA puts the crop at 104.7 million bales - with a large part of this increase attributable to China.

"I have read with interest recent reports that target the U.S. cotton program as being responsible for suppressed world market prices,” says Adams, the NCC’s vice president of Economics and Policy Analysis. “I can't help but question the basis of that analysis. The market we are seeing unfold right now shows very clearly that as China goes, so go world markets. It also demonstrates that Brazil has tremendous potential to increase cotton production. Combined, Brazil and China's production increase since 2001 is almost twice that of the annual production of West Africa, leaving little room for any real strengthening in world market prices. Also, since 2001, U.S. production has fallen by more than 2 million bales."

In noting that the United States represents the largest retail market for cotton apparel and textile products in the world, Adams says that in 2004, total U.S. cotton product imports will reach the equivalent of 20 million bales.

“The United States is a net consumer of cotton, as consumption of cotton textile products exceeds our production of raw fiber,” he says. “Without a doubt, demand strength in the U.S. retail market is a boost to world prices and a benefit to all cotton producers. Also, the United States is one of the few markets where we’ve seen cotton increase its share of retail consumption relative to manmade fiber. Outside the United States, cotton has lost ground as manmade fiber consumption has surged.”

The economist points out that while the U.S. cotton crop is expected to drop from 2003, production outside the United States will increase substantially. In fact, outside the United States, USDA estimates that cotton acreage will be at its highest level since 1991.

"The recent movements in the world cotton market send a very clear signal,” Adams said. “Should world cotton prices even modestly strengthen, we can expect expansion in cotton production in China and Brazil. Over the past two years, China’s cotton acreage is up by 36 percent, while Brazil increased its plantings by more than half. It appears that even modest price increases will encourage Brazil to continue the process of bringing new acreage into agricultural production in the Mato Grosso region."

Adams says that as the largest producer and spinner of raw cotton, China is the dominant factor in the world market affecting cotton prices. His analysis is supported by the ICAC report which concluded that 65 percent of the increase is expected to occur in China (Mainland), with production climbing to 28.0 million bales, the second largest crop after 1984/85. USDA puts China’s crop at 30 million bales.

The ICAC report also stated that China's share of world mill use is expected to reach 34 percent in 2004/05, the highest level since the mid-1970s.

"China’s surging mill use fuels a textile industry that increasingly targets its output to the world market, particularly with the pending removal of textile quotas,” Adams states. “Since 2001, China’s exports of textile products to the United States have more than doubled, and will grow further after quota removal."