Southern Regional Outlook ConferenceSouthern Regional Outlook ConferenceAtlanta, GeorgiaAtlanta, GeorgiaSeptember 27, 2000September 27, 2000
Cotton Situation and OutlookCotton Situation and Outlook
bybyCarl G. AndersonCarl G. Anderson
Professor andProfessor andExtension Economist-Cotton MarketingExtension Economist-Cotton Marketing
Texas Agricultural Extension ServiceTexas Agricultural Extension ServiceTexas A&M UniversityTexas A&M University
College Station, Texas 77843-2124College Station, Texas 77843-2124
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World CottonWorld Cotton2000/012000/01
““A” Index is up 11 cents from September A” Index is up 11 cents from September a year ago.a year ago.
Production is the same.Production is the same. Consumption is up 5 million bales.Consumption is up 5 million bales. World stocks are down 7 million bales.World stocks are down 7 million bales. More use, less stocks implies higher More use, less stocks implies higher
prices.prices.
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World Cotton Supply and DemandWorld Cotton Supply and DemandMillion BalesMillion Bales
2000/01 2001/02
Beginning Stks.Production
39.9286.75
34.3590.23
Total Supply 126.67 124.58
Mill UseEnding Stks.
92.5734.35
92.0033.61
Stocks/Use“A” Index
37.1161.23
36.5371.00
Sources: USDA/WASDE Supply/Demand 2000/01, 9/12/002001/02 projected by Carl Anderson; 2001/02 price by ICAC
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Economic IssuesEconomic IssuesU.S. has strong economy and dollarU.S. has strong economy and dollarMore textile importsMore textile importsAsian economies - improving slowlyAsian economies - improving slowlyEurope weakEurope weakPolyester price upPolyester price up Implies strong demand for cottonImplies strong demand for cotton
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Cotton: World Stocks/Use Vs. “A” IndexCotton: World Stocks/Use Vs. “A” IndexAugust 1990 - September 2000August 1990 - September 2000
020406080
100120
Cen
ts/L
b. a
nd R
atio
Stocks/Use "A" Index
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Cotton: World Production, Consumption, Cotton: World Production, Consumption, Stocks/Use, and “A” IndexStocks/Use, and “A” Index
Monthly
60
70
80
90
100
Mill
ion
480
Lb. B
ales
0
20
40
60
80
100
120
Price and Ratio
ProductionConsumption
"A" Index
Stks/Use
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Foreign Cotton Production, Use, %Foreign Cotton Production, Use, %Stocks/Use and “A” Index,Stocks/Use and “A” Index,
1980/81-2001/20021980/81-2001/2002
0
20
40
60
80
100
80/81
83/84
86/87
89/90
92/93
95/96
98/99
2001
/02
Mill
ion
Bal
es
0
20
40
60
80
100
Cen
ts/L
b.
Stks/Use Prod Cons. A Index
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Foreign Cotton Area and “A” IndexForeign Cotton Area and “A” Index
62646668707274
Mil.
Har
v. A
cs.
405060708090100
Cen
ts/L
b.
Harvested Acres "A" Index
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““A” Index Versus Exporting Nations A” Index Versus Exporting Nations Stocks to Domestic Use PercentStocks to Domestic Use Percent
20
40
60
80
100
Cen
ts/L
b.
0
20
40
60
80
100
Rat
io
"A" Index Exp. Nations Stks/Use
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China: Production, Consumption, China: Production, Consumption, Imports, Exports, and Ending StocksImports, Exports, and Ending Stocks
0
5
10
15
20
25
30
Mill
ion
Bal
es
Imports Exports Prod. Cons. Ending Stks.
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China: “A” Index and Ending StocksChina: “A” Index and Ending Stocks
0
20
40
60
80
100
Cen
ts/L
b.
0
5
10
15
20
25
Million B
ales
"A" Index Ending Stks.
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Cotton: World Ending Stocks Cotton: World Ending Stocks Showing China Ending Stocks, Showing China Ending Stocks,
1990/91 - 2000/011990/91 - 2000/01
0
10
20
30
40
50
1990 91 92 93 94 95 96 97 98 1999 2000
Mill
ion
Bal
es
World Ending Stocks China Ending Stocks
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China Cotton Supply and DemandChina Cotton Supply and DemandMillion BalesMillion Bales
1998/99 1999/00 2000/01 Beginning Stks.ProductionImports
19.9620.700.36
21.1317.600.12
14.9517.500.70
Total Supply 41.02 38.85 33.15
Domestic UseExports
19.200.68
22.201.70
22.200.70
Total UseEnding Stks.
19.8821.13
23.9014.95
22.9010.25
Source: USDA/WASDE Supply/Demand, 9/12/00
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Cotton: U.S. and Foreign Stocks/Use, Nearby Cotton: U.S. and Foreign Stocks/Use, Nearby Futures, and “A” Index, Aug. 1989/90 - Aug. 1993/94, Futures, and “A” Index, Aug. 1989/90 - Aug. 1993/94,
and and AugAug. 99/00 - Sept. 00/01. 99/00 - Sept. 00/01
0
20
40
60
80
100
A89/90 A90/91 A91/92 A92/93 A93/94 A99/00 A00/01
Monthly: Beginning August 1 Crop Year
Cen
ts/L
b. a
nd R
atio
A Index Nearby Futures U.S. S/U For. S/U
99/00 For. S/U 99/00 U.S. S/U 00/01 For. S/U 00/01 U.S. S/U
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U.S. Cotton Production, Use, %U.S. Cotton Production, Use, %Stocks/Use and North Delta Price,Stocks/Use and North Delta Price,
1980/81-2001/20021980/81-2001/2002
0
5
10
15
20
25
Mill
ion
Bal
es
020406080100120
Cen
ts/L
b.
Stks/Use Prod. Use North Delta
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U.S. Cotton Domestic Use, U.S. Cotton Domestic Use, Exports, and “A” IndexExports, and “A” Index
0
2
4
6
8
10
12
1985 88 91 94 97 2000
Mill
ion
480
Lb. B
ales
0
20
40
60
80
100
Cen
ts/L
b.
Exports Domestic Use A Index
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U.S. Mill Consumption, Net Domestic U.S. Mill Consumption, Net Domestic Consumption and U.S. Share, 1972-1999Consumption and U.S. Share, 1972-1999
05
1015
2025
1972 78 84 90 96 99
Calendar Year
Mill
ion
480
Lb. B
ales
020
4060
80100
Perc
ent
U.S. Mill Cons. Net Domestic Cons. U.S. Share
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Cotton Futures: December 1992 and Cotton Futures: December 1992 and 2000 Settlement Prices2000 Settlement Prices
DJ F M A M J J A S O N D J A M A M J J A S O N D45
50
55
60
65
70
75
80
Cen
ts/lb
.
December 92
December 00
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Cotton Futures: December 1993 and Cotton Futures: December 1993 and 2000 Settlement Prices2000 Settlement Prices
DJ F M A M J J A S O N D J AM A M J J A S O ND50
55
60
65
70
Cen
ts/lb
.
December '93
December '00
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World Cotton Prices: “A” Index, Nearby World Cotton Prices: “A” Index, Nearby Futures, AWP and U.S. Loan RateFutures, AWP and U.S. Loan Rate
September 1996 - September 20, 20009/1 1/9
7 5/1 8/1 1/98 5/1 8/3 1/9
9 5/3 8/21/3
/00 5/1 8/1
9/20/0
025
45
65
85
105
Cen
ts/L
b.
Loan Rate (51.92)
"A" IndexNearby Futures
AWP
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Weekly “A” Index Versus Nearby Weekly “A” Index Versus Nearby Futures Settlement PriceFutures Settlement Price
45
50
55
60
65
70
Cen
ts/L
b.
"A" Index Nearby Futures
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December 2000 Cotton Futures Settlement December 2000 Cotton Futures Settlement Price, U.S. Ending Stocks/Use, and Foreign Price, U.S. Ending Stocks/Use, and Foreign
Ending Stocks/UseEnding Stocks/Use
Based on 441 contract days12/16
/981/4
/99 2/1 3/1 4/1 5/3 6/1 7/1 8/2 9/110/111
/112
/1 1/2 2/1 3/1 4/3 5/1 6/1 7/5 8/1
9/20/0
052
57
62
67
72
Cen
ts/L
b.
0
10
20
30
40
50
60
Percentage
U.S. Stks/Use
Settlement Price
For. Stks/Use. For. Stks/UseProj. 00/01
U.S. Stks/Use Proj. 00/01
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Net Bale Commitments of SpeculativeNet Bale Commitments of SpeculativeTraders in Cotton FuturesTraders in Cotton Futures
Average Nearby Futures Price, January 1, 1994 - September 15, 2000Average Nearby Futures Price, January 1, 1994 - September 15, 2000
Week
0123
-1-2-3-4
Mill
ions
40
60
80
100
120
Cents/Lb.
Nearby Futures Price Long less Short
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World: Historical Supply/Demand PriceWorld: Historical Supply/Demand Price
Stocks/Use Million Bales
“A” Index Cents/Lb.
August ’93December ’93March ’94August ‘94
41.139.236.632.8
55.559.882.176.7
August ’00September ‘00
38.037.1
60.962.0
August ’01 Proj. ?Source: USDA/WASDEProjection by Carl Anderson
36.5 71.0
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Futures PricesFutures PricesSeptember20, 2000September20, 2000
Year 20002001
December 63.1563.95
Year 20002001
July 66.0565.88
Implications1. Stable market2. U.S. export dependent3. U.S. with larger carryover
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Pricing StrategiesPricing Strategies Puts for price insurancePuts for price insurance
Buy puts, sell out-of-the-money callsBuy puts, sell out-of-the-money calls
Forward contracts - problems with deep Forward contracts - problems with deep discounts, financial securitydiscounts, financial security
Join marketing association or gin poolJoin marketing association or gin pool
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Keys to Profitable Cotton IndustryKeys to Profitable Cotton Industry
Industry teamworkTechnological advancesProduction costs under 65 cents/lb.Risk versus alternative crops Increase yields/acreReduce cost/poundProducer performance accountingExpand world demand
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SummarySummary
2000/01: Less world supply More use Higher price
2001/02: World production near use U.S. production more than use U.S. supply up Price implications: “A” Index = 65-75 cents ? December ‘01 futures = 62-72 cents ?
