Falling stocks/use ratio aiding cotton

The week of the 22nd annual Agribusiness Management Conference in Fresno, spot prices for San Joaquin Valley Acala cotton topped 85 cents per pound as nearby December futures neared 80 cents.

Farmers and others involved in California cotton learned the fundamentals behind their good fortune from a report prepared by Gary Adams, vice president of economic and policy analysis for the National Cotton Council, for the annual ag business conference.

It's simple; world stock/use levels outside of China have tumbled from a peak of 50 percent in 2001 to a projected 34 percent for this crop.

Coupled with that is an increasing world demand for cotton, reported Adams, and the price picture is considerably brighter than it has been in a several years.

Adams said this year's U.S. crop is projected at just under 17 million bales. Coupled with beginning stocks, there is a supply of about 22.4 million bales of American cotton for sale domestically and in export.

A rebound in domestic retail consumption that started last year continues this year. “Through the first six months, retail consumption exceeded last year's pace by an average of 140,000 bales per month. Based on these numbers, a retail market of 22 million bales seems reasonable,” reported Adams. This compares to last year's consumption of just under 21 million bales.

Mill use drops

Unfortunately, this growth is at the expense of the domestic textile industry, which is being decimated by huge import increases, primarily from China. Its imports are running 40 percent above year-ago levels.

Domestic mill use is now expected to fall to 6.6 million bales for the '03 marketing year, down 700,000 bales from last year.

That is making exports increasingly more important to the viability of U.S. cotton. In its September report, Adams said USDA is reporting production outside the U.S. at 76.4 million bales, up 5.7 million bales from last year.

Like in the U.S., world cotton consumption continues to increase, but at a slower pace than over the past two years due to rising prices.

The cotton deficit outside the U.S. for ‘03 falls to 16 million bales, said Adams, down from 20 million in the previous marketing year.

Adams said the potential exists for the U.S. to export 12 million bales, about what was exported last year. This is roughly 70 percent of this year's crop. Any exports above 10.5 million bales will reduce stocks, added Adams.

The balance sheet right now favors higher prices, said Adam, warning however that “we have to keep an eye on the underlying strength of demand and competition for manmade fibers.”

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