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Home / Knowledge / News / Textiles / USDA reduces Chinese cotton consumption

USDA reduces Chinese cotton consumption

13
Dec '08

USDA's December supply demand report confirmed the growing concern facing not only the U.S., but also the world cotton industry. Cotton production is declining as more land area is shifted to alternative crops and cotton consumption continues its nose dive. China and India, the world two largest producing countries will decrease the land area they devote to cotton. Additionally, they are also the two largest textile producing countries and the demand for their output is seeing a sharp decline.

New York cotton futures continue to follow the same signals that have a vice grip on the economies of the world. While the international news media continues to report that the roots of the world's economic problems were exposed by the U.S. mortgage crisis, it is now clear from world income data that consumer income began to decline in late 2007, thus setting the stage for a contraction of the world economy. The decline in consumer income was spread across numerous major economies, thus setting the stage for what has become the most severe economic crisis since the great Depression of 1929-32. Too, it is likely that the difficulties will not be put to rest for as long as five years.

The U.S. continues to see its textile industry shrink and textile demand in the major countries that buy cotton from the U.S. is also facing a decline, i.e., China, Turkey, Indonesia, and Bangladesh. The Pakistani textile industry is also facing a declining demand for raw cotton.

In its December report, USDA increased it estimate of 2008-09 ending stocks to 58.8 million bales, up 1.4 million above it November estimate. World production is expected to fall to 111.6 million bales, off 1.3 million from November. World demand, however, was estimated at only 116.6 million bales, down 2.75 million from last month.

Principal changes were reported for India, with production up 1.0 million bales to 25.0 and with consumption falling 500,000 bales to 17.5 million. Additionally, USDA reduced Chinese consumption another 1.5 million bales, down to 49.5 million (3.5 million bales below the 2007-08 level), and the first year to year decline in ten years. Turkey, Indonesia and Bangladesh accounted for another decline of nearly 300,000 bales.

USDA increased its estimate of the 2008-09 U.S. crop to 13.6 million bales, up 100,000 from last month. Reflecting the deterioration in world income, U.S. domestic consumption was lowered another 100,000 bales, down to 4.3 million. Far more noticeable, however, was the reduction in U.S. exports, down 750,000 bales to 12.25 million. The result was an increase in U.S. carryover of 900,000 bales, up to 7.1 million bales, reflecting a stocks to use ratio of 43 percent. As far fetched as it may seem, the stage is set for U.S. carryover in 2009-10 to climb to 10 million bales.

The demand for cotton is expected to fall further in 2009-10 as it is likely that world income will continue to fall for at least another 18 months. That sets the stage for the U.S. to continue to be the world's supplier of last resort for at least another five years.

Cotton prices will remain low for another year as income declines and consumers and agricultural producers continue to focus on the world food shortage and the resulting demand for food grains, feed grains, and oilseeds.

While it is easy to find a price forecast for cotton as low as 25 cents, I will continue to suggest the low to mid 30's will hold any price break.

O.A. Cleveland

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