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AGRICULTURAL OUTLOOK
Citrus Production Unchanged In 2000/01; Good Quality Expected
(November 22, 2000) The 2000/01 citrus crop is expected to be about the same size as last year, with losses in California balanced by gains in Arizona and Texas. California's citrus growers expect a 7-percent drop from 1999/2000, with reductions coming in oranges and tangerines. Florida's growers expect a 1-percent increase overall, with a larger orange crop, but smaller crops of grapefruit, tangerines, temples, and tangelos. Texas and Arizona, the smallest citrus-producing states, are expected to have the largest gains. Texas' citrus crop is projected to be 11 percent above last year, with increases in both its orange and grapefruit crops. Arizona's citrus crop estimate indicates an improved grapefruit crop and a larger lemon crop.
The orange crop for 2000/01 is forecast at 13.1 million tons, the same as last year. Florida's orange crop, estimated at 10.8 million tons, will be 3 percent above last year. Texas' orange crop is expected up 15 percent, increasing for the second consecutive year. Offsetting these increases, the California and Arizona orange crops, the major source of fresh oranges to the U.S. market, are expected to be down--12 percent in California and 2 percent in Arizona. Much of the decline is attributed to smaller fruit set this year.
Reduced demand affected California's Valencia growers in 1999/2000. Increased competition from other fruit, including navel oranges from Southern Hemisphere countries, forced California's Valencia growers to switch to processors instead of marketing to the much more lucrative fresh market. While fresh orange imports still account for only a small portion of domestic consumption, the domestic fresh Valencia crop could be pressured by the increased availability of navel orange imports during the summer--when previously they were not available in the U.S. market--as well as by a consumer preference for navels.
On the positive side, California's navel oranges are reported to be large this year, a boon for marketing since purchasers in both the domestic and international markets prefer larger sized fruit. The large-size fruit should help boost demand in Japan, the major overseas market for U.S. navels. The tighter supply and higher demand for fresh oranges should also boost grower prices for the navel crop.
Although this season's Florida orange crop is not expected to be as large as the record crop of 1997/98, the supply of orange juice may exceed the previous record. Very high beginning stocks coming into the new marketing year, in addition to this year's expected second-largest production, could put orange juice supplies at 1.8 million single-strength equivalent gallons.
Stocks began high in 2000/01 for not-from-concentrate (NFC) orange juice, despite the increased popularity of this product. About 40 percent of the crop last year went into producing NFC, the largest proportion so far. Movement, however, was sluggish, and processors were left with large stocks. Processors may be forced to beef up their promotions this coming season to sell NFC orange juice, especially early in the season, to move it out of storage. As a result, consumers may see lower retail prices.
While NFC has become the orange juice of choice at the retail level, 60 percent of last year's Florida orange crop went into making frozen concentrated orange juice (FCOJ). FCOJ is sold at the retail level as well as to institutions and food services, and processors who reconstitute the juice and sell it chilled. Movement was good in 1999/2000 for FCOJ, and stocks ended only 4 percent above the year before. The situation coming into this year may result in more oranges going into FCOJ, at least at the beginning of the harvest, and less into making NFC orange juice.
Brazil, the world's largest orange juice producer and the major exporter of orange juice, is projected to produce less juice in 2000/01 due to a smaller crop. Unfavorable weather conditions during flowering and fruit set resulted in smaller sized fruit and slowed maturity, which delayed harvesting. USDA estimates that the smaller crop will result in Brazil's orange juice production declining by 18 percent. Although higher beginning global juice stocks coming into the new season will buffer the decline in Brazil's total orange juice supply, the decline is sufficient to reduce expected world orange juice supplies by 3 percent--despite the projected increase from Florida--and could be felt at the consumer level around the world. Brazil's exports are expected to drop 9 percent from last year, in part from reduced import demand in the U.S. because of this season's larger crop and stable import demand in the European Union.
Grapefruit production is expected to be lower in 2000/01 because of a smaller crop from Florida, where growers have been removing grapefruit trees in response to low prices in the recent past. As a result, the number of bearing trees has declined, reducing crop size.
Fruit size is reported to be similar to last year for white grapefruit and slightly smaller for red grapefruit. Florida's grapefruit are said to be of high quality with minimal blemishes. Small fruit size may hurt prices, especially in the international market where larger fruit command higher prices. Their good appearance, however, should help marketing. Grower prices for processing grapefruit should also be lower this year because processors have started the year with large stocks and will not demand as much fruit as last year. Overall grapefruit grower prices may fall this year, after experiencing only 1 good year following several years of very low prices.
Lemon production in the U.S. is forecast to be the highest in 3 years. Quality of the lemon crops in both California and Arizona is said to be excellent, which should bring producers good prices despite the larger supply. For the first time, the U.S. allowed Argentine lemons to be imported into certain areas in the summer of 2000. The ruling expands the areas in 2002 and in 2004 will allow them to be shipped to all parts of the country, provided there have been no pest problems.
Argentine lemons will enter the U.S. mostly during the summer months when demand is the highest. Even so, the competition may eventually bring down prices at a time when domestic growers expect to get their best prices. To maintain their market position, some larger domestic shippers have become involved in marketing Argentine lemons.
Temple, tangelo, and tangerine crops are expected to be smaller in 2000/01. Florida's tangerine crop is lower than last year's record crop but still higher than the year before, and there should be an ample supply for this winter. The U.S. market can expect to continue to see Spanish clementines alongside tangerines in supermarkets. Americans have come to like clementines because they are easily peeled and seedless.
Citrus exports to China, which began in 2000, will continue to expand. High-quality navel and Valencia oranges, plus grapefruit and lemons, probably have the greatest potential for export growth. Beginning in the 2000/01 season, China's Citrus Agreement calls for additional counties in Florida and California to qualify for exports to China. Exports to the Philippines, especially of grapefruit, are also expected to rise.
World Cotton Market: A Decade of Change
With the 2000 U.S. cotton harvest nearly complete, the spotlight has shifted from supply indications to demand expectations. Record global cotton consumption is forecast this season, continuing the rebound from 1998's decline in the wake of the Asian financial crisis. Although consumption by U.S. cotton mills is forecast to weaken slightly this season as a result of rising textile and apparel (clothing) imports, the United States is expected to export an above-average share of raw cotton to the world market. The result is a more robust market outlook as U.S. and world cotton stocks are expected to become tighter in the 2000/01 marketing year (August-July).
As the global cotton economy enters the first decade of the 2000's, global consumption of cotton is once more on the rebound. World cotton consumption had stagnated in the 1990's due to slow global economic growth during the early part of the decade, the collapse of the Soviet Union's textile industry, soaring polyester consumption in the late 1990's, and the Asian financial crisis which sent a shock wave through the Asian-dominated textile industry. Cotton consumption was particularly stagnant in China and Pakistan, the two leading sources of increased consumption during the 1980's. However, during 1999/2000 and 2000/2001, China and Pakistan once again lead the world in consumption growth, polyester consumption gains have slowed, and Russia's textile industry is beginning to recover. For now, world cotton consumption seems to be on an upward path, benefitting U.S. exports.
U.S. Cotton Crop Increases In 2000
Despite drought conditions this summer in many U.S. cotton producing areas and the subsequent 13-percent loss in planted area, U.S. all-cotton production in 2000 is currently forecast at 17.5 million 480-pound bales, 3 percent above 1999. Although 1999 production problems were fresh in cotton producers' minds earlier this spring, the outlook for profitable alternatives was limited. The cotton marketing loan program--which supplied a significant portion of producers' incomes in 1999--also provided an incentive for U.S. farmers to plant additional area to cotton in 2000. Favorable springtime weather allowed producers to plant 15.5 million acres of cotton this year, the second-largest U.S. cotton area in nearly four decades and 4 percent more than in 1999.
The U.S. national average yield in 2000 is estimated at 622 pounds per harvested acre, above 1999 but below the 5-year average. With beginning stocks at 3.9 million bales, the latest production projection places total supplies for the 2000 season at 21.5 million bales, 2 percent above a year earlier. Total demand for U.S. cotton is also projected to climb this season, with higher exports more than offsetting slightly lower domestic mill use (projected at 10.0 million bales). U.S. cotton exports are forecast to increase significantly in 2000 to 7.6 million bales, 13 percent above last season. Smaller crops in Central Asia and West Africa--the principal U.S. competitors--and an improved outlook for world mill use are factors expected to boost foreign demand for U.S. cotton this season.
The U.S. cotton industry is beginning the new decade with a second consecutive year of growing export volume and export share, just as it was 10 years earlier. But during this time, the U.S. and global cotton markets have experienced profound changes. A decade ago, for example, China and Japan were the leading importers of U.S. cotton, but in 2000/01 Mexico and Turkey are expected to be the most important markets for U.S. cotton.
Continued growth of U.S. cotton textile and apparel imports has also placed tremendous pressure on the U.S. cotton textile industry, forcing some participants to limit output, relocate, or close altogether. At the same time, however, more U.S. cotton is contained in these finished imported products than ever before, due largely to the North American Free Trade Agreement (NAFTA) and the Caribbean Basin Initiative (CBI). These agreements have provided a "home" for U.S. raw cotton and cotton products used in apparel manufacturing--an outlet that might otherwise not have been available. This trend is likely to continue into the foreseeable future.
Income Growth And Liberalization Fuel Changes
The shift in U.S. trade patterns since 1990 illustrates changes that have occurred in global markets during the last decade. Another example is the trend--which predates the 1990's--toward increased textile production and apparel exports by lower income countries, and the associated decline of cotton fiber use by textile mills in wealthier markets. In 1990, Japan, the European Union, and the Newly Industrialized Countries (NIC's) of South Korea, Taiwan, and Hong Kong accounted for 17 percent of world cotton fiber consumption. By 1999/2000, their share had dropped to 10 percent.
Among wealthier countries, the United States is an exception to the general shift away from cotton fiber use for domestic textile production, with output climbing by 16 percent between 1990 and 2000. The expanding U.S. economy and consumer promotion--under the world's only significant cotton promotion program--contributed to the gain by driving up consumer demand for cotton products by 60 percent in the 1990's. Nearly 60 percent of the 20-million-bale U.S. demand for clothing and other products is met by imports. But free trade with Canada and Mexico provides new opportunities for U.S. textile exports, sustaining textile production despite rising imports.
NAFTA enabled U.S. textile mills to indirectly capture a growing share of U.S. consumer demand for apparel by creating trade and investment partnerships with Mexico, where apparel production and exports to the U.S. have soared. Specifically, U.S. mills have used raw cotton to produce capital-intensive intermediate textile products--such as fabrics--for export to Mexico. Mexico, in turn, produces more labor-intensive apparel products and re-exports them to the U.S. under preferential market access not available to Asian apparel product exporters.
The Caribbean and Central America enjoyed similar trade preferences during the 1990's, and Canada, Mexico, and the Caribbean Basin accounted for almost 60 percent of the increase in U.S. cotton product imports during the 1990's. Mexico's use of raw cotton has also grown significantly, and Mexico is now the world's largest cotton importer and the largest customer for U.S. cotton exports.
Market reforms in other parts of the world, such as India, Latin America, and the former Soviet Union (FSU) have also had a large impact on cotton production and consumption in the last decade. Debt problems and economic contraction throughout much of the developing world during the 1980's--and the contrasting stellar growth of export-oriented NIC's--led to economic reforms in India and much of Latin America in the 1990's.
In India, cotton consumption soared as domestic economic growth--and textile exports--responded positively to reforms. During the 1990's, India's cotton consumption rose 4.6 million bales, and raw cotton production rose 3.2 million bales. As a result, India's share of world cotton use rose from 10 percent in 1990 to 15 percent in 1999. In 2000/01, India's consumption is expected to continue rising, but production is expected to be unchanged from the year before, in part due to insufficient rain in Gujarat--traditionally India's leading cotton producing state.
Although cotton consumption also rose in Latin America in response to economic liberalization, the removal of policies that formerly protected cotton growers from competition led to declining production during the 1990's. Latin America's production fell as much as 3.2 million bales during the 1990's, while consumption rose 2.5 million bales. A more limited degree of liberalization in Central Asia, following the breakup of the Soviet Union, also resulted in lower cotton production--down 4.6 million bales between 1990 and 2000. Central Asia's production has stabilized since 1996, but a 500,000-bale decline from the previous year is foreseen in 2000/01 due to an unprecedented drought in the region.
In Russia, economic reforms during the 1990's drove cotton textile production down 85 percent. Russia's transition from centralized planning has taken a severe toll on its textile industry, reducing it from the world's fourth largest cotton consumer in 1990 to 39th in 2000/01.
China Liberalizes Its Cotton Sector
China undertook a program of general economic reform during the 1980's. With the opening of its economy to trade, China more than doubled its share of world clothing exports and became the world's largest cotton producer. Despite these developments, the liberalization of cotton production in China is actually quite recent. In 1999/2000--more than a decade after liberalizing production of other crops--China sanctioned direct sales by cotton farmers to textile mills, and dropped the price floor that had guaranteed government procurement prices at a level well above world prices during much of the 1990's. China had experimented with similar reforms to the cotton market in the early 1990's, but a sharp contraction of output in China's leading producing region immediately forced a reversal in 1993.
Lower procurement prices, a customs service crackdown on smuggling chemical fibers, an improving Chinese economy, and an expanding world economy with higher textile exports led to a surge in China's cotton consumption in 1999/2000. China's rebound during 1999/2000 was extraordinary: a 3-million-bale increase in consumption in 1 year completely offset the 2.7 million bale decline that had stretched out over the previous 7 years. Government figures on China's yarn output and continued increases in textile exports suggest cotton consumption will continue to grow in 2000/01. During the first 8 months of 2000, China's clothing exports rose 38 percent from a year earlier, and its cotton fabric exports rose 28 percent on a net basis. At 22.5 million bales, China's 2000/01 cotton consumption is forecast at a record-high level for the second consecutive year.
To sustain this consumption, China's government has auctioned about 5 million bales through the newly formed China National Cotton Exchange. Most of this cotton was from government stocks. China's inventory levels were a closely guarded secret for many years, and much uncertainty remains. Through October, the government has continued to release cotton through auctions to control prices driven upward by growing textile industry demand. China may also be seeking to minimize government stocks ahead of WTO accession--when import competition may make the release of high priced government stocks problematic--so it is unclear what the current willingness to release stocks indicates about future stock and trade policies.
In contrast to the decline in production during China's earlier cotton market reforms, China's crop is forecast slightly higher in 2000/01 than in 1999/2000. China's cotton producers correctly foresaw that early-season 2000/01 price strength would be sustained through to harvest. Also, weather has been relatively favorable, and the use of genetically modified cotton in eastern China helped avoid the substantial losses to bollworms that had plagued provinces like Shandong and Hebei in the early 1990's. At 18 million bales, China's 2000/01 crop is forecast 400,000 bales above its 1999/2000 level.
The question for the rest of 2000/01 is whether rising consumption and falling stocks will necessitate large imports. China's cotton imports are currently forecast to match its exports, and any change in China's net trade position has important ramifications for the rest of the world.
Textile Export Competition From China And Pakistan
Unlike China, Pakistan's textile industry--the world's fourth largest--experienced growth throughout most of the 1990's. But compared with its performance during the 1980's, when cotton consumption grew 178 percent, growth was a relatively sluggish 24 percent between 1990 and 1998. Pakistan's cotton production, on the other hand, actually fell during 1990-98, as disease forced abandonment of high-yielding varieties early in the 1990's. Recurring insect problems and poor weather continued to depress cotton production afterwards.
The textile industry suffered a further blow as obligations under World Trade Organization membership halted export restraints on raw fiber--ending the domestic industry's preferential access to locally produced cotton. However, rebounding production since 1998 has spurred the reopening of formerly shuttered textile enterprises, and further investment has again increased industry capacity. A 1-million-bale increase in cotton consumption over 2 years is now expected for 2000/01, a 14-percent increase.
About two-thirds of Pakistan's textile output is exported, and during July-September 2000 Pakistan's yarn exports were about 20 percent higher than a year earlier. Similarly, China's 17-percent rise in cotton consumption over the last 2 years is translating into significant competition for textile industries in other countries. China accounts for about 20 percent of the nearly $200 billion worth of clothing annually exported around the world, and its exports are undoubtedly increasing faster than world demand. China alone supplied nearly three-quarters of Japan's January-July 2000 textile and apparel import growth (up 18 percent overall from the year before), and about 50 percent of Korea's import growth. Partly due to these increased shipments from China, Korea's yarn stocks for the beginning of 2000/01 are reportedly 50 percent above the 1999/2000 level, and cotton mill consumption there is likely to shrink.
Competition from lower income countries is also expected to reduce mill consumption in Taiwan, as local firms shift spinning to subsidiaries in Vietnam and China. India and Southeast Asian countries are expected to consume more cotton domestically and increase textile exports in 2000/01--due in part to depreciating currencies in these countries. But lower cotton consumption is foreseen for the industries of Japan, Eastern Europe, the United States, and much of the European Union as textile exports from developing Asian countries continue to rise.
Rebounding Cotton Prices Benefit Southern Hemisphere
Low cotton prices earlier this season have reduced expected cotton production in some regions, including West Africa and Mexico, but price movements since then have provided an opportunity for Southern Hemisphere producers. World cotton prices have rebounded sharply since their lows in December 1999--up 40 percent as of September 2000--while the prices of production alternatives such as corn or soybeans have been relatively stagnant.
The response to this opportunity is record expected production in Australia, and a crop in Brazil that is forecast 17 percent above the previous year. Since 1996, Brazil has had the largest production gain of any major cotton producing country, and its expected crop of 3.4 million bales is more than two and a half times the 1996 level. Although the size of Brazil's crop is similar to 1990/91 levels, changes to the industry over the past decade have been substantial. Brazil's economic reforms during the 1990's have reduced harvests in the states of Parana and Sao Paulo--where cotton is traditionally hand picked--during the first half of the decade, but there has been a surge in mechanized crop production in Mato Grosso and northern Bahia since 1996.
World gross domestic product (GDP) is likely to expand by 4.2 percent in 2000 and 3.5 percent in 2001--well above the 2.8-percent average of 1995-99. But world cotton consumption in 2000/01 is expected to increase by a more modest 1.6 percent from the previous year. If stable economic growth is maintained, the long-run outlook for cotton consumption should improve.
While world cotton consumption is again growing, and growing in some familiar locations, the world textile market has changed, and the U.S. is exporting to different customers than it did 10 years ago. During the coming decade, reform of world textile and apparel trade under the WTO in 2005 and continued expansion of clothing output by developing country exporters suggest further changes are ahead.
Cotton Production Climbs In Southeastern States
In addition to changes in the global market, significant regional shifts have occurred in U.S. cotton area and production over the last two decades. In the 1980's, nearly 70 percent of U.S. cotton area was located in the Southwest and West where land and water were plentiful. However, recent water concerns in these regions, and success of the boll weevil eradication program in the Southeast have led to dramatic gains in area and production in the Southeast. The share of total upland cotton area in this region has tripled since the 1980's. As a result, the share of U.S. cotton area in the Southwest and West has declined from about 70 percent in 1980 to less than 50 percent in 2000.
The Southeast has shown equally impressive growth in its share of U.S. cotton production, particularly in relation to the West. In the 1980's, the Southeast accounted for 7 percent of upland cotton production, while the West contributed 32 percent. Since then, the two regions have moved in opposite directions. In 2000, the latest estimates indicate that the Southeast share of production is approaching 25 percent of the total while share in the West has declined to just over 15 percent.
November 22, 2000 Economic Research Service USDA, Washington, D.C. 202-219-0515
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