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Global Cotton Market Outlook

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  1. Global Cotton Market Outlook Policy Analysis Group Cotton Economics Research Institute WWW.CERI.TTU.EDU/POLICY

  2. Current Situation

  3. A-Index vs. Stock-to-Use Ratio Cents per Pound • In the last two years, stock-to-use ratio has declined by 20 percent. • This has caused the price to rise by more than 30 cents.

  4. Why Stock Level is so Low? 98 • Some production recovery in 2003/04. • Consumption is projected to remain more or less same. • In the last two years, consumption has exceeded production by more than 17 million bales. Million Bales 99 93 88

  5. 2004/05 Outlook • 2004/05 production is estimated to be around 100 million bales because of combination of area expansion and yield recovery. • Some build up of ending stock. • Cotton price is projected to decline by 7 cents. Million Bales Cents/lb

  6. CDF of U.S. Farm Price for 2004/05 • Draws five hundred alternative yield projections from historical distributions. • Solves the model 500 times to obtain price projections for each of the draw. 53 61 Price

  7. World Fiber Prices • Cotton prices are projected to decline by 7 cents per pound next year and remain in the lower 60s for a few more years. • Slow recovery after 2007/08. Cents per lb

  8. Cotton Farm Price • Projected to decline for next two years. • Slow recovery after 2006/07. Cents/lb

  9. Southwest Cotton Acreage • Cotton acreage in the region is projected to top 6 million acres next year. • Steady decline in acreage for the remainder of the baseline. • By 13/14, cotton acreage is projected to be around 5 million acres 000 Acres

  10. U.S. Upland Cotton Acreage • U.S. cotton acreage peaks next year by adding half million acres to reach close to 14 million acres. • However, area starts declining in 2005/06 due to weaker prices. • By 2013/14, area is projected to reach 12 million acres. 000 Acres

  11. Domestic Cotton Mill Use • Mill use continues to decline. • 4.6 million bales by 2013/14 as compared to 6 million bales this year 000 Bales

  12. U.S. Cotton Exports • Projected to decline next year as the production recovers in China and Australia. • In the next few years, exports remain flat due to competition from other exporters. • Some growth in exports during the later part of the projection period but stays well below 2003/04 level. 000 Bales 2.3

  13. World Cotton Trade • Projected to rise 15 percent in the next ten years. • Liberalizations in the textile trade. • Strong income growth in the developing countries. • Projected appreciation of Chinese currency. 000 Bales

  14. World Imports vs U.S. Exports World Trade U.S. Exports 000 bales 000 bales

  15. Exporters to Worry About • Brazil is projected to capture half of the 4 million bales growth in world trade. • Australia also expands its market share in the next ten years. 000 Bales

  16. Cotton Exporters • African cotton exports are projected to grow at slower rate. • Declining cotton exports from Uzbekistan are likely to stabilize in the next ten years. 000 Bales

  17. Mexican Cotton Imports • Mexican cotton imports are projected to increase at a rate much slower than the growth seen in the recent past due to fierce competition from Asian textile exporters in the U.S. market. 000 Bales

  18. No-Growth Asian Markets • Japanese cotton imports continue to decline in the next ten years. • South Korean and Taiwanese imports remain flat due to fierce competition from the low-cost Asian textile exporters. 000 Bales

  19. EU-15 and Turkey: Imports vs Mill Use Imports Mill Use 000 Bales 000 Bales

  20. Growth Markets To Watch!! • These countries account for more than 60 percent of 4 million bales increase in total world trade. • Chinese import increases from 6.9 million bales in 2004/05 to 8.6 million bales in 2013/14. 000 Bales

  21. Chinese Cotton S & U • Since 1998, China has been keeping imports low by dipping into its reserve, which has declined by more than 70 percent in last five years. • In the next ten years, Chinese production is unlikely to keep up with the rising mill demand, making it a growing importer of cotton. 000 Bales

  22. Indian Cotton S & U • Similar to China, Indian production has not been able to keep up with mill use in the last few years. • The deficit is likely to widen in the future. 000 Bales

  23. Uncertainties • Textile trade policies in post MFA era. • Chinese WTO commitments. • India’s ability to improve cotton yield. • Brazilian expansion of cotton acreage in MG and GO (Cerrados area)

  24. Brazilian WTO Petition • Brazil filed a petition with WTO settlement body in September 2003. • U.S. cotton subsidies such as marketing loans, export credits, commodity certificates, direct payments and counter cyclical payments are depressing world prices and are injurious to Brazilian farmers. • The petition was supported by Australia and West and Central African (WCA) countries

  25. West and Central African (WCA) Petition • WCA countries of Benin, Burkina Faso, Mali and Chad have also filed a petition with WTO that they are losing export earnings of US $1 billion a year as a result of subsidies by the United States and the European Union.

  26. Scenario Assumptions • Direct payments are decoupled. • Counter-cyclical payments are non-product specific payments and have some influence on production. • Marketing loan payments have maximum effects on production and trade. • User marketing (step 2) certificates are considered as a domestic subsidy rather than an export subsidy.

  27. Change in U.S. Cotton Production 000 Bales

  28. Change in Southwest Cotton Production

  29. Change in U.S. Cotton Exports 000 bales

  30. Effects on U.S. Farm Price Cents/lb

  31. Impacts on A-Index Price Cents/lb

  32. Supply Response from Competing Exporters Percent FSU: Former Soviet Union

  33. Concluding Remarks • Overall, considerable smaller impacts than claimed by Brazil and WCA. • However, weaker price projections in the baseline would have increased the policy impacts to some extent. • Southwest cotton production is likely to have the maximum effects. • Higher supply response by the rest-of-the-world, particularly competing exporters, brings down the cotton prices close to the baseline level in a few years after program elimination.