The 1997 U.S. cotton crop forecast was virtually unchanged from November, at 18.82 million bales, and is the forth largest crop on record. Upland production is projected at 18.29 million bales (14,000 bales below last month's estimate), while the extra-long staple (ELS) crop is estimated at 533,000 bales (down 15,000). The national average cotton yield in December is placed at 672 pounds per harvested acre, the fifth highest yield. However, Mississippi's yield of 900 pounds is a record, surpassing 1991's 888 pounds per harvested acre. Cotton ginnings totaled nearly 14.75 million bales as of December 1, compared with 14.62 million ginned by the same date in 1996.

While the U.S. cotton production estimate for December was similar to a month ago, several offsetting adjustments in the Southwest and the Delta occurred. In the Southwest, a 100,000-bale reduction in Texas' upland crop placed the region's total at 5.6 million bales. On the other hand, the Delta production forecast continues to rise, expanding 100,000 bales from November to 5.6 million. Meanwhile, production estimates for the Southeast and West regions were virtually unchanged in December at 4.0 and 3.6 million bales, respectively.

The forecast for foreign production in 1997/98 was unchanged in December, staying at November's estimate of 71.3 million bales. Foreign consumption was reduced slightly in December, down 200,000 bales to 78.2 million. However, with foreign imports in 1997/98 forecast higher than a month earlier, and foreign exports forecast lower, the forecast for U.S. cotton exports in 1997/98 was raised 100,000 bales to 7.1 million.

China's 1997/98 production forecast changed the most this month, rising 500,000 bales to 18.5 million. USDA has steadily raised its forecast for China's 1997/98 cotton crop as the season has progressed, as provincial press reports and good harvest weather have lent credence to government reports of a crop much closer to its 1996/97 level than earlier believed.

Production forecasts for a number of export competitors with U.S. cotton were reduced this month, including Pakistan (200,000 bales), Egypt (150,000), Uzbekistan (100,000), Turkmenistan (100,000), Sudan (100,000), and Azerbaijan (85,000). Larger crops were forecast for Syria, India, and Mexico. But for major foreign exporters, losses offset gains in expected 1997/98 production this month by 750,000 bales, and expected exports by major U.S. competitors in 1997/98 fell about 400,000 bales.

The forecast for foreign imports in 1997/98 was raised 200,000 bales, to 27.1 million, compared with November's forecast. While the forecasts for South Korea and Indonesia were trimmed due to continued economic difficulties in the region, the forecasts for India and Mexico were raised. The forecast for imports by China–the largest importer–was unchanged at 2.2 million bales. China's production forecast is higher this month, but year-to-year changes in China's import and consumption policies have a larger immediate impact on imports than does production.

China's purchases of U.S. cotton to date are quite low, suggesting either significantly lower U.S. market share for 1997/98 or a delay in purchasing. Changes in China's cotton policy this year are likely inducing purchasing delays, in contrast to most other countries which are probably weighing their purchases from the United States earlier rather than later.

Typically, China's cotton consumers and importers this year are primarily responding to domestic events rather than responding to global market conditions. This year's price reductions for cotton produced in Xinjiang became effective at the beginning of China's crop year (September/August), and were implemented as much to move excess stocks from the previous year's crop as to head off continued buildup in Xinjiang cotton from this year's reportedly large crop. The Xinjiang Cotton and Jute Company has warehouses in eastern China, so movement to mills could be fairly rapid once the new pricing policy came into operation. The excess stocks from last year's crop reportedly totaled something on the order of 2 million bales. Accessing a portion of these stocks is expected to reduce China's imports substantially in 1997/98–a 39 percent drop from 1996/97 is foreseen. Accessing these stocks at the beginning of the marketing year–particularly under circumstances of uncertainty regarding import policy during the rest of the year–probably delayed interest in imports by mills in China.

Most importers of U.S. cotton appear to have made their purchases earlier in the marketing year rather than waiting as they did in 1996/97. During mid- December 1996, export commitments equaled 60 percent of marketing year 1996/97's 6.9 million bales. During mid-December 1997, export commitments equaled 84 percent of 1997/98's forecast of 7.1 million bales. During 1980-91, mid-December commitments averaged 77 percent of exports, ranging from 62 to 87 percent. Using the average commitment/export ratio would suggest the United States will export 7.7 million bales of cotton in 1997/98. However, relatively tight beginning stocks in competing countries means the ratio should be above average. Adding 1 standard deviation (8 percent) to the 1980- 91 average gives a ratio of 85 percent, suggesting exports close to 7 million bales.

But, under a standard statistical assumption of a “normal” distribution for this variable, extending 1 standard deviation above the mean implies that we expect to see higher values only 2.5 percent of the time. Another way to state this is that a ratio of 85 percent would be the second or third highest we could expect to see in 100 years. The factors driving importers to purchase earlier than usual during the 1997/98 season do not warrant such an assumption, and a ratio below 85 percent is therefore more conservative.

The U.S. cotton mill consumption estimate remains unchanged this month at 11.4 million bales, 2 percent above 1996/97. Based on 3 months of data, the seasonally adjusted annual rate (SAAR) for mill use has also averaged 11.4 million bales. Actual cotton consumption has surpassed 3 million bales during August-October 1997, compared with 2.9 million a year earlier.

While cotton use by mills is running 4 percent above a year ago, manmade use is up 1 percent. As a result, cotton's share on the cotton spinning system so far this season has averaged 78.7 percent. During 1996/97, cotton's share averaged 78.2 percent, the highest in 30 years. Abundant cotton supplies at lower prices this season, coupled with an improving demand for denim and rising textile exports, should result in near- record cotton mill use in 1997/98.

Based on the latest U.S. cotton supply and demand projections, total supplies are estimated at 22.8 million bales, while total demand is now forecast at 18.5 million. As a result, ending stocks are projected at 4.3 million bales, 100,000 below the November forecast but 300,000 above beginning stocks. Based on these estimates, the implied stocks-to- use ratio for 1997/98 equals 23 percent, compared with 22 percent last season.

Cotton prices have declined this fall as the harvest potential has been generally favorable around the world. U.S. spot prices for base quality upland cotton slipped to nearly 69 cents per pound in November, with the ELS grade 3 spot price holding near $1.00. Since September, however, the average price received by upland producers has remained near 69.5 cents through mid-November.

Prices for mill-delivered cotton have also decreased this fall. At the start of 1997/98, mill-delivered prices averaged 77.6 cents per pound and by October, they had fallen to 75 cents where they remained in November. As a result, cotton prices have become more competitive recently, with polyester staple prices remaining stable. Evidence supporting this competitiveness is the rise in cotton's share on the cotton system to nearly 79 percent.

Likewise, world prices have declined so far this season. In August, A Index prices were 81 cents per pound, with the U.S. quote near 84 cents. By November, the A Index had fallen to average 77 cents. However, U.S. quotes on the A Index have decreased a similar amount and averaged near 80 cents per pound in November. U.S. cotton, therefore, has continued to be competitive overseas, with export commitments reaching nearly 6 million bales by early December.

Textile imports rose to 954 million pounds in September, 5 percent above a month earlier, and only slightly below record shipments during July. Higher imports of cotton textiles, primarily apparel, accounted for 53 percent of the increase. Imports of all major fibers rose in September compared with a month earlier. Higher shipments of yarn, thread, and fabric and apparel more than offset slightly smaller imports of house furnishings and floor coverings. Cotton textile imports, at 496 million pounds, were up 5 percent from August, and were 30 percent above September 1996 imports. On a regional basis, most of the September increase occurred from other North American countries. Higher shipments from major suppliers such as Mexico, Honduras, El Salvador, and the Dominican Republic accounted for the majority of the increase.

While textile imports rebounded to a near record in September, textile exports reached a record 386 million pounds. Textile exports were up only 1 percent compared with a month earlier, but were 30 percent above September 1996 shipments. Exports of all textile fibers, except wool, were higher than a month earlier. Also, increases in all major end-use categories, except apparel, occurred in September. Cotton textile exports, at 162 million pounds, were only slightly above a month earlier, but 23 percent above a year ago. U.S. cotton textile exports to North America rose to 129 million pounds, representing 80 percent of total shipments. U.S. cotton shipments to Mexico, at 45 million pounds, were 47 percent above September 1996 exports.

The cumulative January through September trade deficit reached 3.98 billion pounds. The deficit for the corresponding period during 1996 was 3.36 billion pounds. Total export shipments, at 3.2 billion pounds, are 27 percent (685 million pounds) above last year. However, total textile imports rose 22 percent (1,301 million pounds) to 7.2 billion pounds from a year earlier. The 9-month cotton textile trade deficit, at 2.4 billion pounds, is 23 percent above 1996.

Trade deficits of manmade fibers, wool, and linen have also increased in 1997. Despite record export shipments, the annual deficit in textile trade could approach 5.3 billion pounds, surpassing the 1995 record of 4.7 billion.

December 12, 1997 Economic Research Service

USDA, Washington, D.C.

LIVESTOCK MONTHLY Rising Pork Production Dampens Prices
COTTON OUTLOOK U.S. Cotton Crop Forecast Unchanged
OIL CROPS OUTLOOK World Snatches Up U.S. Soybeans And Soybean Products
WHEAT OUTLOOK U.S. Wheat Forecasts Mostly Unchanged For 1997/98
FEED OUTLOOK Weaker Export Outlook Leads To Small Increase In Feed Grain Stocks

Consensus National Futures and Financial On Line Index

Added to the WWW 12-19-97
Last updated on 12-19-97

Hosted by:
One Crossroads Place
610 West Maple Ave, Suite WWW
Independence, MO 64050
(816) 252-4080
sysop@kcmo.com

wmeubank@ocp.kcmo.com