Global Markets: Cotton – U.S. Market Share in China Down Sharply

The U.S. share of China cotton imports fell to 18 percent in 2018/19, down sharply from 45 percent in 2017/18, and was well below the 30 percent share seen over the previous 5 years. This was also the lowest market share since China reformed its cotton sector in 1999.

U.S. cotton faced two challenges in China in 2018/19; first, the additional tariffs being placed on certain imports of U.S. cotton; and second, the arrival on the world market of two consecutive record Brazilian crops.

India’s market share was also below the 5-year share. India’s share has been trending down since China began limiting imports outside of the WTO TRQ. With limited access, importers prefer to bring in machine-picked cotton.

Also, India’s continual increase in its domestic Minimum Support Price coupled with lower world prices limits its cotton competitiveness. Uzbekistan’s market share was also at the lowest level since China’s cotton sector reform, but this was largely due to Uzbekistan’s domestic policies which are expanding domestic use and limiting exports.

Brazil benefited most from the lower market shares by the United States, India, and Uzbekistan, while Australia, West African countries, and most other exporters saw small increases in market share. Brazil’s then-record 2018 crop provided exporters with ample supplies, and the prospects of an even larger 2019 crop gave exporters an incentive to ship the cotton rather than carry it over.

Brazil also benefited from purchases for China’s State Reserve. Traditionally, State Reserve purchases have been primarily of U.S. cotton, but due to the ongoing trade dispute between the United States and China, the State Reserve purchased almost exclusively Brazil cotton in 2018.

With U.S.-China trade tensions ongoing and Brazil having a second record crop, it is unlikely that U.S. market share will recover to historic levels in 2019/20.

Revisions to the United States 2017/18 and 2018/19 Balance Sheets

Revisions were made in September to the 2017/18 and 2018/19 U.S. balance sheets. Specifically, revisions were made to both exports and loss in both marketing years (MY), which resulted in slightly lower beginning stocks for the 2019/20 MY.

The revisions were based on two factors. First, an increasing divergence between the volume of esports reported by USDA Export Sales and U.S. Census. Second, data used to estimate MY ending stocks.

For its backyear U.S. balance sheet estimates, USDA uses various sources of data to estimate production, imports, consumption, exports, and ending stocks. For exports, U.S. Census trade data is also followed, but the Export Sales data has been viewed as a better final estimate. For over a decade, USDA has used Export Sales data as the basis for its end of year MY exports estimates.

Production is based on NASS final estimates of production. Consumption is based on FSA and NASS mill consumption data. Imports are based on U.S. Census data. Data from these sources available throughout the MY are used to formulate the monthly estimates, and, at the end of the MY, USDA’s estimates are trued up to these sources.

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Data for mill stocks, warehouse stocks and other stocks are used in September of each year to estimate MY ending stocks for the previous MY. The Loss reported in the balance sheet is the residual needed to equate supply and use in the overall balance sheet.

The 2017/18 MY balance sheet showed a relatively large loss (residual) and there was also a relatively large divergence between Export Sales and U.S. Census export volumes. As the 2018/19 MY progressed, the divergence between Export Sales and U.S. Census continued to widen.

Following past approaches for estimating balance sheet components through for the end of the 2018/19 MY would have indicated an unprecedented loss residual. This potential for such a large loss led USDA to examine the entire balance sheet. No reason was found to adjust the production, import or consumption estimates, and there had been no change in the reliability of the stock data available.

The changes in the divergence between Export Sales and U.S. Census data over the same period led to the conclusion that actual export volume in in 2017/18 and 2018/19 would be more accurately estimated using both sources of export data (Export Sales and U.S. Census) and the other components of the balance sheet.

The resulting estimates are reflected in the revised balance sheets with higher estimated exports and a reduction in loss to near zero. The revised methodology has no impact on the production, consumption, or import estimates. The only effect was to raise exports, reduce the loss, and slightly lower ending stocks in both years.

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