United States cotton production may be up relative to last year, but the latest forecast shows a dip in projected production for the 2014/15 crop year, owed to lower domestic supplies and reduced foreign import demand.
In its latest World Agricultural Supply and Demand Estimates report, the U.S. Department of Agriculture (USDA) said production for this year’s crop is reduced nearly one million bales, from 17.5 million to 16.5 million, due mainly to reductions in Texas, Georgia and Arkansas.
According to Cotton Inc. senior economist Jon Devine, “West Texas turned hot and dry late in the summer and that put some stress on the crop. Certain areas in Georgia are also suffering. Due the worsening of crop conditions, yield forecasts for both Georgia and Texas declined and abandonment projections increased in September relative to August. More abandonment means fewer acres being harvested. Lower yield means less cotton being pulled out of fields that are harvested. The two together drove the 1.0 million bale reduction to the harvest number in the USDA’s September report.”
Domestic mill use is expected to remain unchanged, but exports are expected to decline by 700,000 bales, USDA noted.
Ending stocks for the season are now forecast to be 5.2 million bales, or 38 percent of total use, and average prices are expected to be between $0.58 to $0.70 cents per pound.
“Even with the reduction to the forecast, this year’s crop is still expected to be a good bit bigger than last crop year (16.5 million bales for 2014/15 versus only 12.9 million bales in 2013/14),” Devine said, one reason being that the cotton planted was 9 percent more than last year. “With this year’s crop being bigger than last year’s, and with Chinese import demand lower, US ending stocks (amount stored in US warehouses at the end of the crop year – July 2015) are expected to more than double (from 2.5 million to 5.2 million bales),” he added.
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On the global level, USDA said ending stocks would increase 1.2 million bales, and world consumption is expected to grow nearly 4 percent in 2014/15.
Beginning stocks are raised mainly in China and India, partially offset by decreases for several countries, including the U.S. Production is raised for India, the African Franc Zone and Turkey, and reduced in Argentina and Uzbekistan.
Lower imports are expected for Pakistan, India and Turkey based on higher forecast production, but are raised in Vietnam, USDA’s report noted.
Global import demand is projected to be lower this crop year because of expectations that China will import less cotton since it will no longer be making purchases through its reserve program, Devine said.
“The key implication of this announcement is that a domestic fiber market will be re-created. During the 2012/13 and 2013/14 seasons, the government purchased 85-90% of the Chinese crop, and there was not a free-flowing system that allowed cotton to move from farms to mills – the government prevented that by buying up all the harvest,” Devine explained. “With cotton now able to flow from farms to mills, domestically grown supplies are once again available to Chinese mills. This should mean lower import demand. In addition, the Chinese reserves that have been accumulated over the past couple years, may also be pushed out onto the Chinese market. Whatever cotton is sold from reserves represents another increase in domestic supply and less need for imports.”
Since China is the world’s largest importer, Devine said the decrease in import demand from the Asian nation means lower export shipments globally. “In combination with production increases in major exporting countries, like the U.S., the implication is that there will be a lot of cotton looking for demand and when that happens, you have lower prices,” he added.