National Cotton Council economists point to a few key factors that will shape the U.S. cotton industry’s 2020 economic outlook.
This past year can be characterized as a year with significant uncertainty and volatility in the global economy and the world cotton market. On January 15, 2020, Trump signed the Phase 1 trade agreement with China. As part of the agreement, China has agreed to purchase an average of $40 billion in U.S. agricultural commodities, including cotton, over the next two years. However, the overall impact for cotton remains uncertain as commodity specific details have not been released.
While the Phase 1 trade agreement provided some cautious optimism for an improvement in the cotton economic situation, the China coronavirus outbreak in the early weeks of 2020 could delay China’s ability to increase purchases in the near-term. As a result, the potential impacts of the coronavirus represent a significant wildcard in the outlook for the world cotton market in the 2020 crop year.
In her analysis of the NCC Annual Planting Intentions survey results, Campiche said the NCC projects 2020 U.S. cotton acreage to be 13.0 million acres, 5.5 percent less than 2019. The expected drop in acreage is the result of slightly weaker cotton prices relative to corn and soybeans. With abandonment assumed at 13.8 percent for the United States, Cotton Belt harvested area totals 11.2 million acres. Using an average 2020 U.S. yield per harvested acre of 848 pounds generates a cotton crop of 19.8 million bales, with 19.1 million upland bales and 675,000 extra-long staple bales. U.S. cottonseed production is projected to decrease to 6.1 million tons in 2020.
Regarding domestic mill cotton use, the NCC is projecting a slight decline in U.S. mill use to 2.85 million bales in the 2020 crop year. As one of largest markets for U.S. cotton, U.S. mills continue to be critically important to the health of the cotton industry. In the face of rising textile imports from Asian suppliers, the U.S. textile industry has focused on new investment and technology adoption in order to remain competitive. The recently passed U.S.-Mexico-Canada Agreement (USMCA) includes some important provisions that should help boost the U.S. textile industry.
Campiche noted that export markets continue to be U.S. raw fiber’s primary outlet. World trade is estimated to be higher in the 2019 marketing year, but the retaliatory tariffs and increased competition from other major exporting countries has led to a sharp decline in the U.S. trade share in China. Despite the continued U.S.-China trade disruptions, U.S. export sales to other markets have been very strong for the current crop year.
Sales reached the highest level in the marketing year during the week ending on February 6. While export competition from Brazil remains strong, the U.S. has had increased opportunities for export sales to other markets in the 2019 crop year. Lower production in Australia, Pakistan, and Turkey has led to higher U.S. export sales. As a result, the United States will remain the largest exporter of cotton in 2019 with 16.5 million bales.
Prior to the implementation of tariffs, the United States was in a prime position to capitalize on the increase in Chinese cotton imports. With the imposition of the 25.0 percent tariff, China has turned to other suppliers during the 2018 and 2019 marketing years, allowing Brazil, Australia, and other countries to gain market share. Vietnam is currently the top export market for U.S. cotton in the 2019 crop year, followed by China and Pakistan.
U.S. exports are projected to drop slightly to 16.4 million bales in the 2020 marketing year. For this outlook, the U.S. is assumed to export 2.5 million bales to China in the 2020 crop year as compared to an estimated 2.0 million bales in the 2019 crop year. However, with record stocks outside of China, increased production in Brazil, and a partial recovery in Australia’s production, the U.S. will continue to face strong export competition in 2020. When combined with U.S. mill use, total offtake falls short of expected production, and ending stocks are projected at 5.9 million bales.
Campiche said world production is estimated to decline by 2.4 million bales in 2020 to 118.9 million as a result of lower cotton acreage. World mill use is projected to increase to 121.7 million bales in 2020. Ending stocks are projected to decline by 2.0 million bales in the 2020 marketing year to 80.1 million bales, resulting in a stocks-to-use ratio of 66.4 percent. Stocks outside of China are projected to increase to a record level in 2020.
Based on the underlying assumptions and resulting cotton balance sheet, stable stocks outside of China, increased export competition from Brazil, recovery in Australia’s production, and low manmade fiber prices will have a bearish influence on cotton prices. A quick containment of the coronavirus and a successful implementation of the Phase 1 trade agreement would provide support to prices.
As with any projections, there are uncertainties and unknowns that can change the outcome.
Additional details of the 2020 Cotton Economic Outlook are on the NCC’s website at http://www.cotton.org/econ/reports/annual-outlook.cfm.