Cotton Outlook: China Leads World Stocks Decline

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The USDA cotton estimates for 2018/19 project world ending stocks to decrease 8 percent from the previous season to 74.4 million bales. With global cotton mill use forecast to exceed production, world stocks are expected to decline 6.4 million bales by season’s end, as lower stocks in China in 2018/19 more than offset higher stocks outside of China.

China continues to reduce its surplus cotton supplies that peaked in 2014/15 at more than 66 million bales, or 62 percent of total world ending stocks that season. Since then, cotton sales from China’s national reserve have reduced their stocks significantly during the past several years and also provided the domestic textile industry with supplies to support its expanding cotton mill use.

As a result, China’s cotton stocks at the end of 2018/19 are projected at 29.9 million bales, or about 40 percent of the global total. At the same time, stocks outside of China are forecast to rise to a record 44.6 million bales in 2018/19. India’s cotton stocks are expected to account for 12 percent of the global total this season, while the United States is forecast to hold nearly 7 percent.

Domestic Outlook

U.S. Cotton Production Estimate Slightly Higher in October

According to USDA’s October Crop Production report, 2018 U.S. cotton production is estimated at nearly 19.8 million bales, marginally above last month’s forecast but about 1.2 million bales below the 2017 crop. While expected harvested area was lowered slightly in October, the national yield was higher, increasing the U.S. production estimate by 81,000 bales.

The U.S. upland cotton crop is forecast at 19.0 million bales this season, compared with a 2017 crop of 20.2 million bales. During the previous 20 years, the October estimate has been below final production 10 times and above it 9 times; the October forecast equaled final production in 1 year. Past differences between the October estimate and final production indicate that chances are two out of three that the 2018 U.S. upland cotton crop will range between 18.1 million and 19.9 million bales.

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Upland cotton production is forecast to increase in the eastern half of the Cotton Belt and decrease in the western half this season. In the Southeast, 2018 cotton production is projected at 5.6 million bales, 1 million bales above last season as area and yield are forecast higher. Harvested area is estimated at 2.8 million acres—400,000 acres above the 5-year average—and the largest since 2011.

The Southeast yield is projected at 950 pounds per harvested acre in 2018, the second highest on record, despite significant decreases in the Carolinas and Virginia due to losses in part associated with Hurricane Florence, which passed through parts of the region in September. However, the effects of Hurricane Michael—which passed through the Southeast in early October—will be incorporated in future estimates.

In the Delta, the 2018 cotton crop is estimated at 4.6 million bales, the largest since 2007 as area expanded to its highest in 6 years and yield is forecast at a record. Cotton harvested area is estimated at nearly 2.0 million acres while the region’s yield is forecast at 1,133 pounds per harvested acre, surpassing the previous high of 1,116 pounds.

In the Southwest, the 2018 upland crop is forecast at nearly 8.0 million bales, below the previous two seasons but above the 5-year average. Planted area of 8.6 million acres was the highest in over 60 years, but drought conditions throughout much of the growing season reduced harvestable acreage significantly this year.

For 2018, harvested cotton area is expected to reach only 5.2 million acres, an implied abandonment rate of nearly 40 percent—the highest in 5 years. Meanwhile, the 2018 Southwest yield is estimated at 731 pounds per harvested acre, compared with last season’s 819 pounds per harvested acre and the 5-year average of 699 pounds.

In the West, the upland cotton crop is projected at 802,000 bales in 2018, compared with 833,000 bales in 2017. Lower area this season was somewhat offset by an increase in yield to 1,464 pounds per harvested acre, compared with a 5-year average of 1,480 pounds.

The extra-long staple (ELS) cotton crop—grown mainly in the West—is forecast at 771,000 bales in 2018, the highest in 6 years and nearly matching 2012’s 780,000-bale crop. While ELS area is slightly below 2017, this season’s yield of 1,508 pounds per harvested acre is the highest in 5 years.

Total 2018 U.S. cotton harvested area is estimated at 10.5 million acres, compared with last season’s 11.1 million. The national yield is projected at 901 pounds per harvested acre, slightly below the 2017 record of 905 pounds. As of October 7, 25 percent of the U.S. cotton crop had been harvested, slightly above last season and the 2013-17 average of 18 percent.

Meanwhile, 42 percent of the 2018 cotton area was rated “good” or “excellent,” compared with last season’s 60 percent. In addition, 25 percent of the area was rated “poor” or “very poor,” compared with 15 percent in 2017. For current production estimates by State, see table 10.

U.S. Demand and Stocks Estimates Revised for 2018/19

The U.S. cotton demand estimate for 2018/19 was reduced in October to 18.9 million bales, 200,000 bales below the September projection and the 2017/18 estimate. U.S. cotton exports accounted for the decrease this month and are forecast at 15.5 million bales. The lower October estimate is attributable to reduced foreign import demand associated with a lower global cotton mill use projection this month.

Nonetheless, U.S. cotton exports are expected to be the third highest on record in 2018/19. The U.S. share of global trade is forecast at 37 percent in 2018/19, slightly below the previous two seasons as stronger competition is expected from other major cotton producers/exporters in 2018/19.

With the reduced U.S. demand projection in October and the slightly higher U.S. production estimate, the U.S. ending stocks estimate increased 300,000 bales this month to 5.0 million bales. Stocks are expected to rise 700,000 bales during 2018/19 to their highest level since 2008/09. However, the implied stocks-to-use ratio (26 percent) is estimated at the highest in only 3 years and 3 percentage points above 2017/18.

Based on the latest supply and demand estimates and recent prices, the average upland cotton farm price is projected to range between 69 cents and 77 cents per pound in 2018/19. The midpoint of 73 cents would represent a 5-cent increase from last season’s estimate of 68 cents per pound and would be the highest since 2013/14 when the upland farm price averaged 77.9 cents.

Full report.

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