The World and U.S. CottonOutlook for 2018/19

Interagency Commodity Estimates Committee

Presented byStephen MacDonald

smacdonald@oce.usda.gov

Agricultural Outlook ForumFebruary 23, 2018

.

.

USDA Cotton Outlook

• Current year review, 2017/18:– Broad global expansion boosts cotton consumption– Favorable cotton/polyester price ratio boosts consumption– Production continues rebound: fastest growth since 2004/05– Ending stocks outside China rise– Prices average similar to 2016/17

• Upcoming year outlook, 2018/19:– Global consumption rises, more slowly– Global production falls: mixture of yield and area declines

• U.S. planted area up, production down– Ending stocks outside China rise further– Prices lower

2017/18Current World Cotton Situation

Large World Consumption IncreaseExpected for 2017/18

• 5.0-percent growth expected—fastest since 2009/10.– 6th consecutive year of growth (longest positive run since 1980s)

• Global economic growth fastest since 2011.– IMF forecasts calendar 2017 and 2018 world income growth to

average 3.8 percent.

• Policy changes affecting polyester production in China.– Cotton/polyester price ratio most favorable in 3 years.

• China Reserve sales program well established.• Impact of past extreme cotton price volatility fading.

Cotton consumption estimated at 120.5 million bales.

Cotton’s Share of U.S. Textile Imports,2010/11 to Aug-Dec 2017/18

(raw-fiber-equivalent basis)

25

30

35

40

45

50

55

2010/11 2011/12 2012/13 2013/14 2014/15 2015/16 2016/17 Aug-Dec

2016/17

Aug-Dec

2017/18

Perc

ent s

hare

Source: USDA/ERS.

China’s Mill Use: Rising, But Below Peak…

0

10

20

30

40

50

60

2009/10 2011/12 2013/14 2015/16 2017/18

Mill

ion

bale

s

Marketing year

Mill Use Yarn Imports

…mill use decline > yarn import growth

Sources: USDA and Global Trade Atlas.

China’s Cotton Yarn Imports StabilizeVietnam’s shipments continue to grow

0

2

4

6

8

10

12

2010/11 2011/12 2012/13 2013/14 2014/15 2015/16 2016/17 2017/18proj.

Mill

ion

bale

-equ

ival

ents

Vietnam India Pakistan Others

Marketing year

Sources: USDA and Global Trade Atlas.

New Markets Lead Global Consumption Growth, 2012-2017

0

20

40

60

80

100

120

140

2012/13 2014/15 2016/17

Mil.

bal

es

Marketing years

Bang., Viet., & Indo.India & PakistanChinaROW

8

Source: USDA Cotton ICEC.

Production Rises in Most Major Producing Countries in 2017/18

0.0

1.0

2.0

3.0

4.0

5.0

Mil.

bal

e ch

ange

World production estimated 14% above 2016/17

Source: USDA Cotton ICEC.

2017/18Current U.S. Cotton Situation

U.S. Cotton Planted Area:A Historical Perspective

0

2

4

6

8

10

12

14

16

18

1965/66 1978/79 1991/92 2004/05 2017/18

Mil.

acr

es

Source: USDA/NASS.

2017/18 area planted near historic average; SW share highest since at least 1965/66

Southwest

Other

U.S. Cotton Regional Production,2014/15 to 2017/18

0

2

4

6

8

10

12

Southeast Delta Southwest West

2014/15 2015/16 2016/17 2017/18

Mil.

bal

es

Source: USDA/NASS.

U.S. Domestic Cotton Consumption:Total and Per Capita

15

20

25

30

35

40

0

5

10

15

20

25

2007 2009 2011 2013 2015 2017

lbs.

Mil.

bal

e eq

uiva

lent

s

Calendar Year

Total Per capita

Source: USDA/ERS.

U.S. Cotton Supply and Demand

Unit 2016/17 2017/18Change

(%)Beg. Stocks mil bales 3.8 2.8 -27.6Production " 17.2 21.3 23.8Imports " 0.0 0.0 0.0Total supply " 21.0 24.0 14.5

Mill use " 3.3 3.4 3.1Exports " 14.9 14.5 -2.8Total use " 18.2 17.9 -1.7

Ending stocks " 2.8 6.0 118.2Stocks-to-use % 15.1 33.6 122.5Farm price cents/lb. 68.0 69.0 1.5

14

2018/19World Cotton Outlook

-2-1012345678

-15

-10

-5

0

5

10

15

1980

1983

1986

1989

1992

1995

1998

2001

2004

2007

2010

2013

2016 Perc

ent,

GD

P

Perc

ent,

cott

on

Sources: USDA and IMF.

World Cotton Consumption and Economic Growth

Cotton GDP

Marketing years

Cotton/Polyester Price Ratio Shifts in Cotton’s Favor—But Historically High

-4

-3

-2

-1

0

1

2

30.4

0.6

0.8

1.0

1.2

1.4

1.6

1.8

1975 1980 1985 1990 1995 2000 2005 2010 2015

Fibe

r sh

are

chan

ge (%

)

Fibe

r pr

ice

ratio

A Index/polyester Annual change in cotton fiber share

Source: USDA and ICAC.

February 2018 ratio ↓ 16 % yty

Projected Changes in World Production,2018/19 Compared With 2017/18

-2

-1.5

-1

-0.5

0

Mil.

bal

e ch

ange

Source: USDA Cotton ICEC.

More normal yields in the United States and China

Reduced area in bollworm-affected Indian states

Reduced area in Brazil and Australia

China’s State Cotton Reserves:

0

10

20

30

40

50

60

2010/11 2011/12 2012/13 2013/14 2014/15 2015/16 2016/17 2017/18est

2018/19proj

Mill

ion

bale

s

Marketing year

Reserve sales expected to continue in 2018/19

Source: USDA, Cotton ICEC.

China Cotton Supply & Demand Projections:Large supply limits need for imports

Unit 2017/18 2018/19Change

(%)Beg. Stocks mil bales 48.4 40.9 -15.6Production " 27.5 27.0 -1.8Imports " 5.0 7.0 40.0Total supply " 80.9 74.9 -7.5

Consumption " 40.0 41.2 3.0Exports " 0.1 0.1 0.0Total use " 40.1 41.3 3.1

Ending stocks " 40.9 33.6 -17.8

Reserve stocks “ 18.0 10.5 -42.0

Stocks-to-use % 102.0 81.3 -20.3

Source: USDA, Cotton ICEC.

Assumptions Behind 2018/19 Projections

• Constant rate of global economic growth.– Little change in exchange rates– General policy continuity

• Cotton/polyester price ratio little changed.– Ratio remains favorable vis-à-vis levels of last 2 years.– Ratio remains above 2000-08 average.

• Continuity in China Reserve sales and trade policy.– Continued draw-down of government-owned stocks– No sliding-scale import quota in calendar 2018

• Normal weather during 2018 and 2019• Current 2017/18 estimates have minimal error

World Cotton Supply & Demand Projections:China’s stocks fall more than world stocks

Unit 2017/18 2018/19Change

(%)Beg. Stocks mil bales 87.7 88.6 1.0Production " 121.4 117.0 -3.6Imports " 38.2 40.0 4.6Total supply " 247.3 245.6 -0.7Consumption " 120.5 122.9 2.0Exports " 38.2 40.0 4.7Total use " 158.7 162.9 2.6Ending stocks " 88.6 82.7 -6.7China stocks " 40.9 33.6 -17.8Stocks-to-consumption % 73.5 67.3 -8.4

Source: USDA, Cotton ICEC.

Global Cotton Stocks Projected Lower…

0

20

40

60

80

100

120

0

20

40

60

80

100

120

140

2012/13 2013/14 2014/15 2015/16 2016/17 2017/18est.

2018/19proj.

Cen

ts/lb

.

Perc

ent o

f wor

ld c

onsu

mpt

ion

China Rest of World A Index

…but stocks outside of China remain high

Source: USDA, Cotton ICEC.

2018/19U.S. Cotton Outlook

February Drought Conditions Worst in Southwest Since 2015

.

.

.

.

All-Cotton Planted Acres Based onRelative Prices, Winter Wheat Area, Texas Moisture Index,

2007-2018 proj.

4

7

10

13

16

4

6

8

10

12

2011 2018 2017 2010 2016 2015 2014 2012 2008 2013 2007 2009

Plan

ted

acre

s

Pric

e ra

tios

Cotton:Corn (50%) Cotton:Soy Planted Est. planted

Estimated area 2018: 13.3 mil. acres.

Higher cotton prices

Outlook for 2018 U.S. Cotton Area

• Planted acreage expected higher at 13.3 million acres. – Harvested area forecast at 11.3 million acres.– NCC survey indicated about 13.1 million acres planted.

• Cotton is priced favorably vs. competing crops as planting approaches

• Opportunity to reassign generic base acres to “seed cotton” base in 2018/19 also supportive of higher area

• Soil moisture in Texas is at a level associated with higher abandonment

U.S. Cotton Area, Yield, and Production

Southwest expected to account for 60% of area

Unit 2017/18 2018/19 Change(%)

Planted area Mil. acres 12.61 13.30 5.5

Harvested area " 11.35 11.30 -0.4

Abandonment rate % 10.0 15.0 50.0

Yield/harvested acre Lbs. 899 828 -7.9

Production Mil. bales 21.26 19.50 -8.3

Key Factors Include Crop Conditions & Abandonment

Source: USDA, Cotton ICEC.

U.S. Share of World Trade Rises in 2018/19

0

5

10

15

20

25

0

10

20

30

40

50

2003/04 2008/09 2013/14 2018/19

Perc

ent o

f wor

ld

Perc

ent o

f wor

ld

U.S. trade (left axis) U.S. production (right axis)

29

Source: USDA Cotton ICEC.

U.S. Cotton Supply & Demand Projections: Exports Rise, But Stocks Unchanged

Unit 2017/18 2018/19Change

(%)

Beg. Stocks mil bales 2.75 6.00 118.2

Production " 21.26 19.50 -8.3

Imports " 0.01 0.01 0.0

Total supply " 24.02 25.51 6.2

Mill use " 3.35 3.40 1.5

Exports " 14.50 16.00 10.3

Total use " 17.85 19.40 8.7

Ending stocks " 6.00 6.00 0.0

Stocks-to-use % 33.6 30.9 -8.0

Farm price cents/lb. 69.0 63.0 -8.7

Source: USDA, Cotton ICEC.

Revisiting theAssumptions Behind 2018/19 Projections

• Constant rate of global economic growth.– Little change in exchange rates– General policy continuity

• Cotton/polyester price ratio little changed.– Ratio remains favorable vis-à-vis levels of last 2 years.– Ratio remains above 2000-08 average.

• Continuity in China Reserve sales and trade policy.– Continued draw-down of government-owned stocks– No sliding-scale import quota in calendar 2018

• Normal weather during 2018 and 2019• Current 2017/18 estimates have minimal error

Thank You!