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COTTON IN ABUNDANT SUPPLY
The cotton industry has been through some rough spots this past year. Prices sunk to 29-year lows and domestic use has fallen off more than some believed possible. Production in the U.S. will reach a record high of over 20 million bales. World production is also higher this year estimated to be near 97 million bales. While U.S. exports are forecast to reach record levels, they unfortunately will not be able to offset the overwhelming supply situation, thus ending stocks will rise.

The record production in 2001/02 is an accumulation of increased acreage and better than expected yields. Significant increases in the Delta have contributed to the up-tick in acreage this year. Acreage for 2001/02 is estimated at 15.8 million acres, up from 15.5 million in 2000/01. Favorable weather, with the exception of the Southwest, led to an increase in average yield per harvested acre of 66 pounds.

While supplies are increasing, demand has headed south. The U.S. textile industry is bleeding profusely and the continued cheap imports from Asia are only making a gaping wound worse. Over the last several years, consumer use of cotton in the U.S. has been on the rise. However, U.S.-made textiles are seeing their share of the consumption slip away to imports from Asian countries. A strong dollar relative to other currencies has caused U.S. cotton textiles to suffer and cheap imports have caused a rash of bankruptcies and closings. Currently, mill consumption, as figured by the National Cotton Council on an annualized rate, has fallen below 8 million for the last six months.

Exports on the other hand are performing very well. Sales and shipments indicate that exports will reach well over 9 million bales. However, exports will be unable to keep the U.S. carryover stocks from rising significantly. The high level of ending stocks is expected to keep pressure on prices.

While prices are at dismal levels, there has been some strength recently and a move away from contract lows. The market will continue to watch exports closely and look to see if foreign acreage will drop off due to low prices. While acreage in the U.S. should drop back somewhat, current legislation is providing somewhat of a buffer between cotton producers and the low U.S. price. Without a change in policy initiative the over-supply situation may be around longer than we would like to see. AM


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