Rabobank: Promising Long-Term Outlook for Cotton

Despite 2008's U.S. cotton acreage forecast at its lowest level in more than 20 years, the long-term outlook for cotton appears promising. Changes in the global sector and an improved U.S. economy are likely to increase textile demand, and with it demand for cotton, according to a new Rabobank report.

"This ailing patient, the U.S. cotton sector, shows every sign of a great recovery -- it just may need at least another year to recuperate," said report author and Rabobank Food & Agribusiness Research and Advisory (FAR) Vice President Michael Whitehead. "While the long-term outlook for the cotton sector in the United States is favorable, the sector may still endure some pain before things improve."

U.S. cotton acreage fell by almost 30% in 2007/08, to approximately 11 million acres. Cotton acreage reductions were large across all the major cotton growing regions, ranging from a 21% fall in California and Arizona to a 35% drop in the Delta region (Arkansas, Louisiana, Mississippi, Missouri and Tennessee). And these numbers are likely to fall further. With the prices of corn, soybeans and wheat forecast to remain strong, growers are likely to continue to move away from cotton.

The forecast for the 2008/09 year shows that cotton acreage is forecast to continue falling, declining another 13% to just over 9.4 million acres -- the lowest level since 1983. "Acres in the Delta region are likely to see a larger decrease, approximately 30%, a change which would see that region losing over half its cotton area in just two years," said Whitehead. Decline in other areas is not likely to be as severe.

“ … Assuming that current trends, in terms of strong demand and upward price pressure for grains and oilseeds continues into 2009, it would be reasonable to predict that 2009/10 U.S. cotton acreage is unlikely to see a major increase, if any increase at all," Whitehead continued. "However, as the economic slowdown eases, textile demand is likely to strengthen again, and with it demand for cotton."

Globally, the United States is in a strong position to maintain a viable cotton growing segment. Developing countries such as China and India are likely to lose acreage to expanding food crops and urbanization. Additionally, issues of the availability of water in places such as Australia, Uzbekistan and Africa place questions on the viability of their long-term crop.

"So, as global cotton prices react to any future cut in supply, U.S. cotton growers will be ideally placed to benefit," said Whitehead.