A Prettier Picture Than ’09
February 18, 2010 In his economic update address, Dr. Gary Adams, NCC Vice President of Economics and Policy Analysis, said, “It’s better to be able to stand here and talk to you when cotton prices are on the rise. It’s certainly a different picture than we saw a year ago.”
The December 2010 contract on the ICE-New York Board of Trade was in the 55-cents-per-pound range last year during Beltwide, but over 77 cents this year due to bullish production and use numbers.
Adams said USDA projects world production at 102.7 million bales, down almost 5 million bales from 2008, due to a drop in China of 5.2 million bales. The crop in Central Asia is also smaller. Changes in other countries negated each other.
“Mill use is expected to recover to 114.5 million bales, after a sharp drop in 08/09,” he continued. “The current 2009/2010 estimate is still well below the 2007/2008 level. But the combined effect of reduced production and increased mill use is a significant drop in stocks by the end of the current marketing year. If realized, it would be the first time for such a drop since the ’02 marketing year.”
Adams said the larger question will be the extent of the economic recovery. The latest projections from the International Monetary Fund call for the global economy to expand by 3% in 2010, after a contraction of just over 1% in 2009.
“As 2009 ended, the economy continued to exhibit positive signals, but there are concerns that economic expansion will be slow,” he explained. “Consumer spending will likely be restrained as confidence remains low, unemployment remains high, and the housing market struggles.”
For the U.S., the importance of exports cannot be understated. Seven international markets account for almost 75% of total U.S. cotton exports. And three international markets ― China, Turkey and Mexico ― make up more than half that. China alone takes 30% of U.S. exports.
“Mill use in China suffered the effects of the downturn in the global economy, but current estimates call for a recovery in 2009/2010,” Adams said. “The result should be additional imports by China, but we have to remember how closely China manages its market through the issuance of import quotas and the sale of stock reserves.”
On the other hand, India is becoming more and more of a competitor. India’s production growth has outpaced textile demand. And in 2008, India increased its cotton support prices to a level that made it Less competitive on the world market.
“As a result, India’s exports were sharply lower in 2008/2009, but India appears poised to expand exports in the current marketing year,” said Adams. “India’s increased exports create a more challenging market for U.S. cotton. Over the past 5 years, export market shares of the U.S. and India are virtually mirror images. An increase in India’s trade share generally means a reduction in U.S. trade share. Such will be the case for 2009/2010.”
Man-made fibers will always pose serious competition for U.S. cotton, but cotton stocks are still declining, and that will continue support to cotton prices as growers make cropping decisions for this spring.
“The recent rise in prices has placed cotton in a more competitive position than at any time in the past three years,” Adams said.
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