Cotton Outlook Tied to Demand Recovery
March 12, 2009 The U.S. cotton industry continues to face “a very competitive and difficult economic climate” but there are some reasons for optimism in the coming year, National Cotton Council Economist Dr. Gary Adams said.
The NCC’s 2009 Economic Outlook was made at its Annual Meeting in Washington, DC,
“For the 2009 marketing year, reductions in cotton production will be evident in more countries than observed in previous years,” Adams said. “Also, mill use is expected to recover based on independent economic projections calling for recovery by calendar 2010.” But we warned that these projections are dependent on the wildcards of overall global economic performance and impacts of policy changes.
Adams said world cotton production in 2009 is projected to fall 4.3 million bales to 105.5 million bales ― the smallest crop since 2003. World mill use will recover to 113.8 million bales. The smaller crop and increased mill use would allow stocks to decline to 56.3 million bales from 62.2 million in 2008.
Looking at the 2009 world cotton market, Adams said China and India will continue to be important players. He said both countries’ governments have made policy decisions that have moved significant amounts of the 2008 crop into government stocks ― and how they handle those stocks’ release will affect U.S. exports.
China is estimated to end the 2008 marketing year with
19.4 million bales of stocks, with a significant amount in government reserves. “If the Chinese government decides to aggressively liquidate those reserves in the coming months, it could dramatically alter their import requirements,” Adams said.
He noted that for the 2009 marketing year, a slight recovery in China’s mill cotton use to 47.2 million bales is expected along with a cotton crop decline to 32.6 million bales from 36.5 million in 2008. If that happens, China could import 9.6 million bales.
On the other hand, he said India may return as a more significant exporter in 2009 because production is expected to be near current levels with only a slight recovery in mill use.
The NCC sees a slight contraction in U.S. cotton offtake for 2009 with U.S. cotton exports projected at 11.2 million bales and U.S. mill cotton use at 3.9 million bales.
On a positive note, Adams said the much-needed economic assistance included in the 2008 Farm Bill has been implemented and textile mills are submitting the necessary documentation to receive 4 cents-per-pound on their cotton consumption. Also, the United States’ government has begun monitoring certain U.S. textile and apparel imports from China in a move aimed at preventing a repeat of the disruptive surge of Chinese textile/apparel exports to this country following the discontinuation of quotas in 2005.
On the domestic side, Adams said, “U.S. cotton’s economic situation will continue to be heavily influenced by developments in the world market. A reduction in U.S. stocks may have little bearing on prices if world stocks remain high.”
For more details, see: www.cotton.org/econ/reports/annual-outlook.cfm
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