BY JODY CAMPICHE
From Cotton Grower Magazine – December 2016
In the current 2016 marketing year, U.S. producers planted 10.1 million acres of cotton, based on USDA’s National Agricultural Statistics Service’s October 2016 estimates – which was 18% more than last year. Acreage was greater in all the Cotton Belt regions except the Southeast, which showed a slight decline.
As the 2016 U.S. cotton harvest progressed, USDA estimated a crop of 16 million bales, 24% more than in 2015. Upland production was seen reaching 15.5 million bales, with Pima production forecast at 562,000 bales.
World production for 2016 is projected to be almost 103 million bales, which is 6.0 million bales more than last year. The United States is responsible for the largest production increase, at 3.0 million bales higher than last year. Australian production is projected to be 1.0 million bales higher than in 2015. Pakistan’s crop is expected to be 1.25 million bales higher in 2016. Production in Brazil is expected to increase by 600,000 bales in 2016, while Turkey is projected to increase production by 550,000 bales. India’s crop is expected to be 100,000 bales more than last year, while China’s production is estimated to decline by 1.0 million bales.
For the second consecutive year, world consumption is expected to exceed production in 2016. USDA is projecting a slight increase of less than 1% in world mill use to 112 million bales for 2016 due to increased consumption in China, Bangladesh, Vietnam and Turkey. U.S. textile mills are expected to consume 3.5 million bales, 50,000 bales more than in 2015.
Although world consumption has expanded for the past five years, cotton demand continues to struggle due to increased competition from lower priced man-made fibers.
The United States will remain the largest exporter of cotton with 2016 shipments estimated at 12 million bales, 31% more than last year and the largest forecast in four years. To reach the 12 million bale estimate, the U.S. market share is projected to increase from 26% in 2015/16 to 34% in 2016/17, which represents the largest market share since the 2010/11 crop year. While projections call for a rather large increase as compared to 2015/16, export sales as of mid-October were 40% greater than this time last year. U.S. exports also are benefitting from lower projected 2016/17 exports for India, which is the second largest cotton exporter.
In the last five years, the international markets for U.S. cotton have changed considerably. From 2002 until 2014, China held the spot as the largest importer of U.S. cotton. For the past two crop years, China has significantly reduced raw cotton fiber imports, while increasing yarn imports. However, for the first few months of the 2016 marketing year, Chinese imports of U.S. cotton were significantly higher than this time last year.
Vietnam has continued to increase imports of U.S. cotton over the past five years and was the largest customer in the 2015 marketing year. Turkey, Indonesia and Mexico have remained important export customers as well. In 2016/17, exports to Pakistan and India have increased and already have surpassed exports to those countries in the 2015/16 marketing year.
Over the past five years, Turkey has been our second largest customer, accounting for about 15% of U.S. cotton exports. However, the demand for U.S. cotton by Turkey has been affected by the implementation of a 3% import duty on U.S. cotton following the conclusion of the Turkey anti-dumping investigation against the U.S. cotton industry. The first few months of data for the 2016/17 marketing year reveals a reduction in the U.S. market share for Turkish cotton imports.
Looking ahead, China’s policies will continue to have a large influence on the world cotton market. Although China continues to hold almost 50 million bales in government reserves, China’s recent auctions led to a significant reduction. From May-September 2016, China sold almost 12 million bales during the reserve auctions. China will continue to auction off government reserves from March-August each year until the reserves reach a “reasonable” level. It is still unknown as to the level of stocks considered “reasonable” by the Chinese government.
China remains the largest textile manufacturer in the world and recently announced plans to significantly expand the textile industry in the Xinjiang region over the next 8-10 years. The area planted to cotton in China has been declining for the past five years, including a further 8% reduction in 2016/17. China’s 2016/17 cotton acreage is 48% less than in 2008. While China has been reducing acreage in the lower-yielding eastern provinces, acreage in Xinjiang has been relatively stable over the past few years. However, an expansion in China’s textile industry, coupled with lower cotton production and reserves, should lead to an increase in demand for imported cotton in the next few years.
While an expansion in China’s textile industry could be a source of increased demand for U.S. cotton, increased competition from synthetic fibers should not be underestimated. As a result of lower-priced synthetic fibers, cotton’s share of world fiber consumption continues to decline. With world polyester producers operating at just 71% of capacity and with prices in China – the largest polyester producer – below 50 cents per pound, the detrimental impacts of synthetic fibers are felt by all participants in the global cotton market.
Campiche is Vice President, Economics & Policy Analysis, National Cotton Council of America