Global Cotton Market Outlook Policy Analysis Group Cotton Economics Research Institute WWW.CERI.TTU.EDU/POLICY
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.
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
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
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
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
Cotton Farm Price • Projected to decline for next two years. • Slow recovery after 2006/07. Cents/lb
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
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
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
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
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
World Imports vs U.S. Exports World Trade U.S. Exports 000 bales 000 bales
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
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
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
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
EU-15 and Turkey: Imports vs Mill Use Imports Mill Use 000 Bales 000 Bales
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
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
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
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)
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
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.
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.
Change in U.S. Cotton Production 000 Bales
Change in U.S. Cotton Exports 000 bales
Effects on U.S. Farm Price Cents/lb
Impacts on A-Index Price Cents/lb
Supply Response from Competing Exporters Percent FSU: Former Soviet Union
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.