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Production costs, drought leave cotton outlook mixedProduction costs, drought leave cotton outlook mixed

February 17, 2006

4 Min Read

Higher fuel and fertilizer costs and persistent drought in top producing areas will likely make the 2006 cotton crop 3 to 5 cents per pound more expensive to produce than the 2005 crop, but those factors may work in favor of stabilizing prices by keeping total acreage down in the United States, according to Gary Adams, vice-president of economics and policy analysis for the National Cotton Council.

The 2005 crop will likely end up being a record one of nearly 23.7 million bales, with 5.15 million bales coming from the six Southern states represented at the annual joint meeting of the Southern Cotton Producers Association and the Southeastern Cotton Ginners Association, held recently in Charlotte, N.C.

Speaking at the joint meeting, Adams notes that Georgia led the way in cotton production in the Southeast, producing 2.15 million bales in 2005. North Carolina produced 1.43 million bales, followed by Alabama with 830,000, South Carolina with 420,000, Virginia with 185,000 and Florida with 129,000 bales.

Back-to-back record crops left the United States with an oversupply of cotton, which is likely to move upward to near-record levels that were on hand after the 2001 crop.

“We have a 5.5 million-bale carryover from the 2004 crop, and an estimated 23.7 million bales produced in 2005, leaving us with just over 29 million bales to market. Despite some increase in demand and relatively strong prices worldwide, this carryover is reason for concern,” Adams says.

He points out that the trend upward in cotton products being imported into the United States continued in 2005. Though some of this cotton was grown in the United States, exported as raw product, and returned as finished goods, it still has a direct impact on U.S. mill use of domestic raw cotton.

The domestic market for cotton has dropped almost 50 percent in the past 10 years, from 11 million bales in 1996 to projected use of less than 6 million bales in 2006. “We have to continue to support use of our cotton by U.S. mills, but we must face the reality that over 70 percent of our cotton crop will be exported in 2006,” Adams says.

In 2005 over 16 million bales of U.S.-grown cotton was exported, comprising approximately 70 percent of the crop. In 2006, exports are expected to edge closer to 18 million bales.

China is by far the biggest foreign customer for U.S.-grown cotton, followed by Mexico and Pakistan. Combined, the top five foreign customers buy over 80 percent of the cotton exported from the United States.

Though China produces about the same amount of cotton as the U.S. (projected 2005 crop is 25 million bales), its domestic use has grown at about 20 percent per year for the past few years, resulting in total demand for raw cotton growing to approximately 44 million bales for 2006. “Even if China reaches projected production levels of 30 million bales per year, its supply/demand ratio will still offer huge market potential for cotton exporters,” Adams explains.

“Unless China has some unforeseen dramatic drop in textile production, it will remain the largest importer of raw cotton and largest exporter of finished textile goods in the world for some time to come,” Adams adds.

Worldwide usage is approximately 115 million bales annually and demand remains high, Adams notes. “However, worldwide, we have about 15 million bales in carryover from 2004, and of greater concern is the high percentage of total carryover that is in the United States.

“On the supply side, prices remain good. Farmer prices of 42 cents per pound increased to 48 cents per pound in 2005, and forecasts for 2006 are optimistic, Adams contends. “It doesn't appear that the Southwest states will be able to duplicate in 2006 their record yields of 2004 and 2005, because of extended drought and higher production prices, which will help on the supply side,” Adams projects.

“On the demand side, we must continue to support domestic use of cotton, but we must recognize that over 70 percent of the 2006 crop will be exported. And, we must recognize that China will be our biggest customer for some time to come,” Adams contends.

“Worldwide we are projecting use of about 115 million bales for 2006, which is online with previous years. So, we have some reason for optimism. However, the high carryover stocks and uncertainty of foreign trade negotiations are reason enough to approach the 2006 production year with caution,” Adams warns.

e-mail: [email protected]

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