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Agricultural Outlook Forum Presented: February 19-20, 2015
U.S. Department of Agriculture
Arlington, Virginia

USDA Cotton Outlook

Joanne Werken
United States Department of Agriculture

Cotton Outlook
Friday, February 20, 2015

www.usda.gov/oce/forum
Agricultural Outlook Forum 2015 Presented Friday, February 20, 2015
THE WORLD AND UNITED STATES COTTON OUTLOOK
Tiffany Arthur, James Johnson, Stephen MacDonald,
Leslie Meyer, Carol Skelly, and Lyman Stone
U.S. Department of Agriculture

Introduction

World Production, Consumption, and Prices

2010/11 through 2015/16 projection
Production Consumption A-index

140 180

130 160

140
120
120
110

cents/lbs.
mil. bales

100
100
80
90
60
80
40
70 20

60 0
2010/11 2011/12 2012/13 2013/14 2014/15 2015/16 proj.

The U.S. Department of Agriculture’s (USDA’s) first 2015/16 world cotton projections
anticipate that consumption will exceed production for the first time in six years, but that global
ending stocks will remain excessive. World stocks more than doubled between 2010/11 and
2014/15, due mainly to cotton policies in China, which supported domestic and world prices
above market-clearing levels. For 2014/15, China’s government has shifted from a price support
to an income support program and intends to impose much stricter limits on imports--the China
policy reversal is largely responsible for driving this season’s A Index down an estimated 25
percent. Responding to sharply lower prices, world consumption is projected to exceed
production by 3 million bales in 2015/16, drawing world stocks down to about 107 million bales,
the equivalent of 92 percent of projected global consumption. With most of the world’s stock
drawdown occurring in China, ending stocks in other countries are reduced slightly. The A
Index is expected to remain level with the current season at 68 cents per pound.

U.S. cotton production is pegged at 14.0 million bales for 2015/16, as producers are anticipated
to reduce planted area by about 12 percent. Domestic mill use is projected marginally above the
2014/15 level and exports are projected marginally lower, with ending stocks about unchanged
from the beginning level.
 2

World Cotton Situation, 2014/15

World Cotton Production, 2014/15

Estimated Changes in World Production,

2014/15 compared with 2013/14
4

1
Mil. bales

-1

-2

-3

-4

Global 2014/15 cotton production is expected to fall 1 percent from the previous year to 119.4
million bales. The estimated crop decline is primarily the result of reductions in China, Australia,
Brazil, and India partially offset by increases for the United States, Turkey and Pakistan. World
2014/15 area harvested is estimated at 34.3 million hectares, up 4.5 percent from last year, and
the world average yield is at 758 kg/hectare, down 5 percent.

China’s 2014/15 crop is estimated at 30.0 million bales, an 8-percent drop from last season as
farmers in eastern China reduced area significantly due partly to uncertainties regarding changes
to China’s support policy. The fall in production moves China out of the top position for the
first time since 1981/82. China’s 2014/15 harvested area is estimated at about 4.4 million
hectares, 8 percent below 2013/14. Yields are expected to reach 1,484 kilograms per hectare,
about equal to 2013 despite less favorable weather, as the portion of area in the high-yielding
Xinjiang Autonomous Region continues to increase.

India’s 2014/15 crop is estimated at 30.5 million bales, down slightly from the preceding year on
lower yields. The world’s largest producer is expected to harvest 12.7 million hectares, up 8.5
percent from a year earlier as a late monsoon shifted area to cotton from other crops. India’s
2014/15 yield is estimated at 523 kg/hectare, 9 percent lower than last year due to rainfall
deficits resulting from the late monsoon.

Pakistan is expected to produce 10.4 million bales in 2014/15, an increase of nearly 10 percent
from the previous year. Pakistan’s 2014/15 area harvested is expected to increase slightly to
3.05 million hectares, and yield is estimated at 742 kg/hectare due to favorable weather
conditions.
 3

Brazil, the largest producer in the Southern Hemisphere, is forecast to produce 7.0 million bales
in 2014/15, down 12.5 percent from the previous year due to deteriorating price prospects for
cotton at planting time. Brazil is expected to harvest only 1.0 million hectares in 2014/15, and
yields are also expected to be down slightly.

Australia is expected to produce only 2.2 million bales in 2014/15, down 46 percent from the
previous year due to limited irrigation supplies combined with dry conditions at planting time.
Australia’s 2014/15 harvested area is estimated at 235,000 hectares, down 46 percent from the
preceding year. Yield is expected to be down only slightly at 2,038 kg/hectare.

2014/15 China Supply and Demand

China Cotton Supply and Demand

2013/14 and 2014/15 est.
Change
Unit 2013/14 2014/15
(%)
Beg. Stocks mil. 50.4 62.7 24.5
bales
Production " 32.8 30.0 -8.4
Imports " 14.1 7.3 -48.3
Total supply " 97.2 100.0 2.9
Consumption " 34.5 35.5 2.9
Exports " 0.0 0.1 92.3
Total use " 34.5 35.6 3.0
Ending stocks " 62.7 64.5 2.8
Reserve stocks " 54.6 49.0 -10.2
Stocks-to-use % 182 181 -0.2
% of world stks " 61.7 58.7 -4.9

Changes to China’s cotton support policies are the major drivers of both China and world supply
and demand in 2014/15. The two most significant changes thus far are a shift from price
support to income support for farmers and much tighter restrictions on imports compared with
previous years. From 2011/12 to 2013/14, the government of China supported cotton farmers by
setting support prices well above world market-clearing levels and buying up production. As a
result, China began the 2014/15 season with estimated stocks of nearly 63 million bales, the
equivalent of almost two years of domestic consumption. For 2014/15, the government reversed
these policies by: (1) shifting from price to income supports; (2) allowing new-crop cotton to
trade at market-clearing prices; and (3) placing more restrictive limits on imports. While China’s
imports have declined nearly 70 percent over the 3-year period, they remain high enough to
contribute to rising stocks. In addition, the government is likely to begin selling cotton from the
reserve this spring, but the quantity offered and sales price are as yet unknown.
 4

China’s internal cotton price has fallen sharply and 2014/15 consumption is expected to rise
about 3 percent to 35.5 million bales, similar to 2012/13, but nearly 30 percent below the 50
million bales realized in 2009/10. While textile production in China continues to grow, domestic
cotton spinning has lost ground both to manmade fibers and to cotton yarn imports from other
countries (unrestricted by quotas). This season’s recovery in cotton consumption has thus far
been constrained by falling prices for manmade fibers, which have dampened the expected
benefit of falling cotton prices to cotton’s share of fiber consumption.

World Cotton Prices Relative to Polyester

Cotton/polyester price ratio: Aug. 2008-Jan. 2015

2.4
2.2
2
1.8
1.6
1.4
1.2
1
0.8
Dec-08

Dec-09

Dec-10

Dec-11

Dec-12

Dec-13

Dec-14
Aug-08

Apr-09
Aug-09

Apr-10
Aug-10

Apr-11
Aug-11

Apr-12
Aug-12

Apr-13
Aug-13

Apr-14
Aug-14
Sources: cncotton.com (polyester), Cotlook Ltd. (cotton, A Index)

2014/15 World Consumption, Trade, Ending Stocks, and Prices

World Cotton Supply and Demand

2013/14 and 2014/15 est.
Change
Unit 2013/14 2014/15
(%)
Beg. Stocks mil.
bales 90.0 101.7 13.0
Production " 120.4 119.4 -0.9
Imports " 40.6 34.2 -15.7
Total supply " 251.0 255.2 1.7
Consumption " 109.1 111.3 2.0
Exports " 40.7 34.2 -15.9
Total use " 149.8 145.5 -2.9
Ending stocks " 101.7 109.8 8.0
Stocks-to-consumption % 93.2 98.7 5.9

World cotton consumption is expected to increase by 2 percent in 2014/15 to 111.3 million bales.
Continued relatively strong global economic growth has resulted in improved aggregate textile
demand while falling cotton prices have supported a slight recovery in cotton’s fiber share. With
 5

stronger than average growth projected for China’s consumption, consumption in the rest of the
world is expected to increase by 1.5 percent, mainly in India and Vietnam.

World trade is forecast down 16 percent from last season as the large fall in imports by China
overshadows weak import demand growth elsewhere. Imports outside of China are forecast to
increase by about 2 percent. India’s exports are expected to fall by more than 50 percent due to
lower import demand by China and lags in availability due to the India minimum support price
(MSP) program.

The accumulation and distribution of world stocks continue to be distorted by the developments
in China. World stocks are forecast to increase 8.2 million bales to 109.8 million bales, a fourth
consecutive record both in volume and as a percent of world use. Over the three previous
seasons, China had accounted for nearly all of the increase in world stocks. However, China’s
new policies aimed at reducing stocks --especially restrictions on imports--will force the majority
of world stock accumulation into countries outside of China. India’s stocks are forecast to rise
by 3.4 million bales, accounting for about half of the stock accumulation outside of China. U.S.
stocks are forecast to increase by nearly 1.8 million bales.

The A Index is forecast to average about 68 cents per pound for 2014/15, a 25-percent drop from
last season. The announcement of the elimination of China’s price support policy in early 2014
removed a floor under prices in China; with stocks outside of China expanding, the A Index has
declined steadily since the beginning of the marketing year.

U.S. Cotton Situation, 2014/15

Area and Production

U.S. Cotton Area, Abandonment, Yield, and Production

2010/11 2011/12 2012/13 2013/14 2014/15

Planted acres mil. acres 11.0 14.7 12.3 10.4 11.0

Harvested acres mil. acres 10.7 9.5 9.3 7.5 9.7

Abandonment rate percent 2.5 35.8 24.0 27.5 12.1

Yield/harvested acre lbs./acre 812 790 892 821 795

Production mil. bales 18.1 15.6 17.3 12.9 16.1

 6

U.S. all-cotton production in 2014/15 is estimated at 16.1 million bales, up nearly 25 percent
from the previous season. Cotton planted acreage increased 6 percent in 2014, due mainly to
favorable cotton prices at spring planting. The Southwest region benefitted from much-needed
rain during the growing season, which contributed to a reduction in the overall abandonment rate
to 12 percent. The U.S. cotton yield fell 26 pounds from 2013 and was below the 10-year
average.

Upland production is estimated up 3.2 million bales from the previous year to 15.5 million bales
in 2014, with an average yield of 781 pounds per harvested acre. Extra-long staple (ELS) cotton
production is estimated down 7 percent at 588,000 bales, as smaller area and a lower yield
reduced the crop to its smallest in four seasons.

U.S. Cotton Regional Production,

2011/12 to 2014/15

2011/12 2012/13 2013/14 2014/15

7

5
mil. bales

0
Southeast Delta Southwest West

Compared with last season, 2014/15 upland production increased in all Cotton Belt regions
except the West. Upland production in the Southwest increased nearly 2 million bales, due
mainly to a sharp reduction in the abandonment rate. Planted area expanded to 6.5 million acres
in 2014, and the Southwest region accounted for 60 percent of U.S. planted area. Harvested area
totaled 5.2 million acres, up 2 million acres from the prior year as the region’s abandonment rate
dropped from 46 percent to 20 percent. The Southwest upland crop reached 6.3 million bales and
accounted for 41 percent of upland production.

Southeast cotton production increased 17 percent in 2014 to 5.1 million bales, while planted area
remained unchanged at 2.7 million acres. A reduction in the abandonment rate and an average
yield increase of 125 pounds—to 926 pounds per harvested acre—accounted for the increase in
Southeast production. Cotton production in the Delta expanded by 24 percent from the previous
year to 3.3 million bales, but remained well below the 10-year average. Delta cotton planted
acres increased by 18 percent, to 1.5 million acres, while the abandonment rate declined. Yield
per harvested acre in the Delta set a record for the third year in a row, reaching 1,114 pounds in
2014.
 7

Upland planted area in the West declined for the third year in a row to 250,000 acres. The
region’s upland production dropped to 765,000 bales, its lowest level since 2009, while the
average yield increased to a record 1,536 pounds per harvested acre. The ELS crop remains
concentrated in the West, with planted area falling to 192,000 acres in 2014. Yield decreased to
1,490 pounds per harvested acre, bringing ELS production to 588,000 bales. Total cotton
production in the West was 1.3 million bales, compared with 1.5 million bales in 2013.

U.S. Cotton Supply and Demand

2013/14 and 2014/15 (est.)
Unit 2013/14 2014/15 Change (%)
Beginning Stocks mil. bales 3.8 2.5 -35.5
Production “ 12.9 16.1 24.6
Imports “ 0.0 0.0 0.0
Total Supply “ 16.7 18.5 10.9
Mill Use “ 3.6 3.7 2.8
Exports “ 10.5 10.7 1.6
Total Use “ 14.1 14.4 1.9
Ending Stocks “ 2.5 4.2 71.4
Stocks-to-Use % 17.4 29.3 68.4
Farm Price cents/lb. 77.9 61.0 -21.7

Domestic Mill Use

U.S. cotton mill use for 2014/15 is forecast at 3.65 million bales, about 3 percent above the
2013/14 estimate. During the first 5 months of 2014/15, mill use is marginally below last
season’s corresponding period. However, with lower cotton prices and positive overall
economic growth, U.S. cotton mill use is expected to improve during the second half of 2014/15.

U.S. consumer demand for textile and apparel products follows the global economy. Economic
conditions improved in calendar year 2014, and fiber product imports increased nearly 4 percent
to their highest level since 2010. However, the gains were concentrated in non-cotton fibers in
2014, as cotton product imports decreased slightly from 17.6 million bale-equivalents in 2013 to
17.5 million bale-equivalents. Despite falling cotton prices, the trend has continued into the
2014/15 marketing year as manmade fiber prices have also fallen. Cotton’s share of total
imported products averaged 45 percent during the August-December 2014 period, compared
with 47 percent for the same period in 2013.
 8

Cotton’s Share of U.S. Textile Imports,

2008/09 to Aug-Dec 2014/15
(raw fiber equivalent basis)
60

55

50

percent share
45

40

35

30

25
2008/09 2009/10 2010/11 2011/12 2012/13 2013/14 Aug-Dec Aug-Dec
2013/14 2014/15

With U.S. cotton mill use and textile exports similar in magnitude, U.S. domestic consumption
of cotton (mill use plus net textile trade) in calendar 2014 is estimated at nearly 17.4 million
bale-equivalents, compared with 17.6 million in 2013. Similarly, U.S. per capita cotton
consumption decreased half a pound in calendar 2014—to an estimated 26 pounds—and remains
one of the lowest since the early 1990s.

U.S. Domestic Cotton Consumption:

Total and Per Capita
Total Per capita
25 40

20 35
mil. bale equivalents

lbs.

15 30

10 25

5 20

0 15
2005 2008 2011 2014
Calendar Year

2014/15 U.S. Exports, Ending Stocks, and Prices

U.S exports for 2014/15 are forecast at 10.7 million bales, marginally above 2013/14. U.S.
exports are expected to capture a larger share of the declining foreign import demand due
primarily to foreign mills’ preference for machine-picked cotton in light of lower expected
production by Brazil and Australia. The U.S. marketing loan program has also facilitated a quick
response by the producer sector to falling world cotton prices, as the adjusted world price (AWP)
fell to a low of 45 cents per pound at the end of January. Export commitments to date have been
seasonally strong. Shipments in the early months of the season were slow due to very low carry-
in stocks and some delay in harvesting. Ending stocks are forecast at 4.2 million bales, resulting
in a stocks-to-use ratio of about 29 percent. The average farm price is expected to fall about 22
percent to 61 cents per pound.
 9

World Cotton Outlook, 2015/16

World Cotton Production, 2015/16

Projected Changes in World Production,

2015/16 compared with 2014/15

-0.5
Mil. bales

-1

-1.5

-2

-2.5

World cotton production in 2015/16 is expected to decline more than 5 percent to 113 million
bales. Production is expected to remain flat or decrease in all major producers, with the largest
reductions of about 2 million bales each expected for the United States and China.

China’s production is expected to decline to 28.0 million bales as producers respond to the
government’s new policies. In light of Xinjiang’s relatively high target support level of 19,800
RMB/ton in 2014/15 ($1.44/lb.), producers there are expected to cut planted area only marginally
in the spring of 2015. By contrast, producers in the Yellow and Yangtze River regions were
guaranteed a much smaller subsidy of at most 2,000 RMB/ton (14.5 cents/lb.), less provincial
administrative costs. Producers in these regions have more employment and cropping options
than Xinjiang producers, and are projected to reduce planted area by about 25 percent. Because
Xinjiang’s yields exceed other provinces’ yields by a substantial margin, aggregate China
production (-7 percent) will fall noticeably less than area (-11 percent).

India’s area and yields have trended upward over the past several years; however, 2014/15 area
rose and yields fell because the monsoon was delayed and rainfall was deficient, especially in
Gujurat and Maharashtra. For 2015/16, planted area of 12.0 million hectares is expected to
return to the 2011-2013 average. Assuming normal yields, production would be 30.0 million
bales, down 500,000 bales from the 2014/15 estimate, making India the world’s largest cotton
producer for the second consecutive season.

Pakistan, the African Franc Zone countries, Turkey, and Egypt are all expected to show
reductions in 2015/16. In the case of Pakistan, stable area and a return to normal yields
following 2014’s exceptionally good yields will result in a slight decrease. The Franc Zone
countries, Turkey, and Egypt are expected to respond to lower world prices, with reductions of
 10

450,000 bales, 200,000 bales, and 100,000 bales. In addition, the government of Egypt has
announced its intention to eliminate subsidies for 2015.

Southern Hemisphere production is difficult to forecast because of the more distant time horizon
for planting decisions, but the current outlook is for flat to lower production. Australia’s
irrigation reserves are currently below year-ago levels, suggesting that producers may have
difficulty raising production above 2014/15’s expected 2.2 million bales. Producers in Brazil
responded to lower world prices by lowering area more than 10 percent in 2014/15, so it is
unclear whether further reductions will be made, considering the weak price outlook for corn,
which competes with cotton as a second crop following soybeans. While Brazil’s government
has agreed to raise the minimum support price there for the first time since 2003, the announced
level is below current market prices.

USDA Policy Assumptions and Projections for China, 2015/16

As in 2014/15, the most important driver of world cotton supply and demand next season is
likely to be China’s production, stock, and import policies. China will be in its second year of a
direct income support program for cotton. It is possible that the 19,800 RMB/ton ($1.44/lb.)
target price for Xinjiang will be reduced, but the announcement is likely to come too late to have
a significant impact on planting intentions. Direct payments in the eastern provinces will be
limited to the lesser of 2,000 RMB/ton (14.5 cents/lb.) or 60 percent of that paid in Xinjiang.

USDA is assuming that imports will reach 7.0 million bales in 2015/16 through a combination of
WTO TRQ licenses totaling 894,000 tons (4.1 million bales), imports for processing and free
trade zones, and cotton imported under the 40-percent out-of-quota duty. Imports are likely to
be slightly below 2014/15 due to a lesser amount of quota carried into the 2015/16 season.
USDA also anticipates that the government will temper its stocks release price and quantity in
order to maintain internal prices at about the current level of 13,000-14,000 RMB/ton ($0.94-
$1.02/lb.), in part because lower prices would raise the cost of subsidies to producers.

In this policy framework, there is potential for China to reduce stocks for the first time in five
years; however, the degree of drawdown will be constrained by the response of production and
consumption. USDA projects that China’s consumption will rise by slightly more than the
average global rate of increase, recovering nearly to its 2011/12 level of 38 million bales and
thereby cutting stocks by about 2.6 million bales. With stocks of about 62 million bales, China
would hold 58 percent of world stocks. Most of these stocks will continue to be held by the State
Reserve.
 11

China Cotton Supply and Demand

2014/15 est. and 2015/16 proj.
Change
Unit 2014/15 2015/16 (%)
Beg. Stocks mil bales 62.7 64.5 2.8
Production " 30.0 28.0 -6.7
Imports " 7.3 7.0 -4.1
Total supply " 100.0 99.5 -0.5
Consumption " 35.5 37.5 5.6
Exports " 0.1 0.1 0.0
Total use " 35.6 37.6 5.7
Ending stocks " 64.5 61.9 -4.0
Reserve stocks “ 49.0 45.0 -8.2
Stocks-to-use % 181.3 164.7 -9.2

World Cotton Consumption, 2015/16

World cotton consumption is expected grow at an unusually high rate in 2015/16, largely
reflecting the sharp decline in the world cotton price in 2014/15. World economic growth is also
expected to accelerate slightly in both calendar 2015 and 2016, providing further support to
consumption, which is expected to increase about 4 percent from the year before. This would be
the largest annual consumption increase since an 8-percent jump in 2009/10 and more than
double the long-run average growth rate

According to the International Monetary Fund’s January 2015 update to its World Economic
Outlook (WEO), world income growth in 2015 and 2016 is expected to be its fastest since 2011.
At 3.7 and 4.1 percent, respectively, gross domestic product (GDP) growth is forecast slightly
above the long-run (1980-2014) average rate of 3.5 percent.

In 2014/15, the A Index declined by an estimated 30.3 percent in inflation-adjusted terms. This
decline was smaller in magnitude than the 34.1 percent and 33.2 percent declines that occurred in
2011/12 and 2001/02, but is still one of the largest downward price adjustments since 1980/81.
For 2015/16, the A Index is forecast unchanged from the year before in nominal terms,
suggesting a decline of 1.8 percent in real terms. Historically, the change in cotton prices from
the year before has a substantially greater impact on a given year’s cotton consumption than the
price changes occurring in that same year; with polyester prices expected to be about unchanged
from 2014/15, the current season’s sharply lower cotton price supports the projection that world
consumption will grow at an unusually large rate. This would be the fourth consecutive year of
 12

rising cotton consumption, matching in duration the string of increases realized during
1999/2000-2002/03.

World Cotton Consumption and

Economic Growth
15 8
Cotton 7
10
GDP 6
5
Percent, cotton

Percent, GDP
5
4
0 3
1980

1983

1986

1989

1992

1995

1998

2001

2004

2007

2010

2013
2
-5
1
0
-10
-1
-15 -2
Sources: USDA and International Monetary Fund.

A downside risk to this forecast is that the GDP forecasts may turn out to have been optimistic.
The standard deviation of the errors in such forecasts during 2005-12 was 2.3 percent, and the
IMF’s January forecasts have been too high in 5 out of the last 6 years. An upside risk to this
forecast is that reduced domestic cotton price distortion in China could increase global
consumption more than expected. As the gap between domestic China and world prices narrows,
some Chinese mill capacity that had been mothballed or diverted to other fibers is likely to return
to production. At the same time, spinning capacity has expanded outside of China since 2011 to
supply yarn imports to China and to meet demand in other markets that mills in China could no
longer profitably supply. While some non-Chinese capacity might be diverted when China’s
cotton spinning production increases, much is likely to remain active, and the expanding capacity
could well result in more competitive yarn prices and higher consumption for cotton textiles.

World and China Cotton Trade, Stocks, and Prices, 2015/16

World trade in 2015/16 is projected about even with 2014/15. China’s consumption is expected
to grow by almost 6 percent, above the average projected for the world, due to the lagged effect
of sharply lower domestic prices in 2014/15. China’s imports are expected to stabilize. While
total imports outside of China are expected to be nearly unchanged, cotton consumption is
expected to continue to shift toward import-dependent countries in Southeast Asia and
Bangladesh and away from producer-consumer countries such as Turkey and Pakistan. India’s
exports are projected to increase based on a record total supply attributable to large carry-in
stocks and stable production. U.S. exports are forecast to decline.
 13

World Cotton Supply and Demand

2014/15 est. and 2015/16 proj.
Change
Unit 2014/15 2015/16 (%)
mil
Beg. Stocks bales 101.7 109.8 8.0
Production " 119.4 113.0 -5.4
Imports " 34.2 34.0 -0.6
Total supply " 255.2 256.8 0.6
Consumption " 111.3 116.0 4.2
Exports " 34.2 34.0 -0.6
Total use " 145.5 150.0 3.1
Ending stocks " 109.8 106.8 -2.7
China stocks " 64.5 61.9 -4.0
Stocks-to-consumption % 98.7 92.1 -6.7

World ending stocks would fall nearly 3 percent to about 107 million bales based on these
projections. Assuming a continuation of China’s current producer support and stocks reduction
policies, China is expected to reduce stocks about 4 percent, leaving the rest of the world with a
marginal decrease.

Stocks outside of China are likely to remain above the recent historical average both in absolute
terms and as a percentage of use, pressuring global prices. Accordingly, the A Index is projected
at 68 cents per pound, the same as the 2014/15 estimate, which is a six-year low.

China’s Stocks, Stocks Outside China,

and Stocks Outside China as % of Use
ROW Stocks China Stocks ROW S/U
70 70
60
50 60
mil. bales

percent

40
50
30
20 40
10
0 30
2010/11 2011/12 2012/13 2013/14 2014/15 2015/16
proj.
 14

U.S. Cotton Outlook, 2015/16

Area, Production, and Supply

U.S. Cotton Area, Yield, and Production

2014/15 est. and 2015/16 proj.
Unit 2014/15 2015/16 Change(%)
Planted area mil. acres 11.0 9.7 -11.8
Harvested area " 9.7 8.4 -13.4
Abandonment rate % 12.1 13.4 10.7

Yield/harvested acre lbs./acre 795 800 0.6

Production mil. bales 16.1 14.0 -13.0

The early USDA projection for 2015 U.S. cotton planted acreage is 9.7 million acres, a decrease
of nearly 12 percent from last year, due mainly to relative prices and net returns that favor
alternative crops over cotton. The projection is below the roughly 10.0 million acres indicated
by statistical analysis, but above the recent National Cotton Council (NCC) survey. The
statistical analysis quantifies the effects of relative crop prices as well as the change in cotton
prices. The main variables are ratios of cotton to corn and soybean prices (using averages of fall
futures prices for the February-March period preceding planting each year) and cotton’s own
price relationship. For 2015, futures prices as of the end of January are used.

All-Cotton Planted Acres Based on

Relative Crop Prices and Cotton Own Price
2007-2015
Cotton:Corn (50%) Cotton:Soy Planted Calc Planted
14 15
Indicated area for 2015 is 10.1 mil. acres.
12
Planted acres

10
Ratios

10
8

4 5
2011 2010 2012 2014 2008 2013 2007 2015 2009

In addition to price, the 2014 farm legislation is expected to impact cotton area in 2015. While
cotton retained some price support in the 2014 Farm Bill via the upland marketing assistance
loan program and the continuation of other cotton programs, it was not included as one of the
covered commodities eligible for the new Agriculture Risk Coverage (ARC) and Price Loss
Coverage (PLC) programs. Instead, cotton support shifted to a shallow loss revenue insurance
program called STAX. Given that STAX provides within-season risk coverage but does not
 15

support against price declines from one season to the next, the program will have little impact on
planting decisions.

By contrast, potential payments for other crops under the ARC and PLC programs may limit
cotton acreage in 2015. Growers with cotton base acres (now called generic base acres) can
participate in ARC and PLC provided they grow a covered commodity on those acres. Whether
these incentives will impact cotton acreage is unknown—the newness of the program and the
possibility that farmers could shift plantings of covered commodities to generic base acreage
without reducing cotton planted acres makes estimation difficult.

The NCC’s survey forecast of 9.4 million acres was released on February 7, reflecting responses
received from mid-December through mid-January. Survey respondents reported decreases in
upland cotton area for each region of the Cotton Belt. In the Southeast, acreage shifting out of
cotton was reportedly moving mainly to soybeans and peanuts. For the Delta States, cotton area
was expected to move to soybeans. The survey indicated that Southwest producers will shift
acreage away from upland cotton and into wheat, grain sorghum, and corn. Water availability
issues and competition from alternative crops also are expected to limit upland cotton area in the
West; however, the NCC reported that ELS cotton planted area will rise due to favorable prices
relative to upland cotton. USDA’s first survey of producer planting intentions—Prospective
Plantings—will be conducted in early March and published on March 31, 2015.

For the purposes of this analysis, cotton plantings of 9.7 million acres are estimated to result in
harvested acreage of 8.4 million acres. The projected U.S. harvested area is based on regional
abandonment rates near their long-run averages. As a result, U.S. abandonment of 13 percent is
slightly above 2014 but well below the 2011-13 seasons. With the Southwest expected to
account for 60 percent of U.S. cotton area in 2015, crop conditions in this region will have a
considerable impact on the U.S. crop. The NOAA mid-January seasonal outlook for the
Southwest indicates that drought will persist through the end of April for much of the region.
Despite recent improvements in some areas of the Southwest, the long-term drought that
significantly impacted both planted area and abandonment in recent years remains.

USDA is forecasting a national average yield of 800 pounds per harvested acre, based on 3-year
regional averages. U.S. 2015 crop production is projected at 14.0 million bales, 13 percent
below 2014 but 8.5 percent above 2013. With carry-in stocks at 4.2 million bales, total supply—
18.2 million bales—would decline approximately 2 percent from 2014/15.
 16

U.S. Disappearance, Ending Stocks, and Farm Price

U.S. Cotton Supply and Demand

2014/15 est. and 2015/16 proj.
Unit 2014/15 2015/16 Change(%)
Beg. Stocks mil bales 2.45 4.20 71.4
Production " 16.08 14.00 -12.9
Imports " 0.01 0.01 0.0
Total supply " 18.54 18.21 -1.8
Mill use " 3.65 3.75 2.7
Exports " 10.70 10.20 -4.7
Total use " 14.35 13.95 -2.8
Ending stocks " 4.20 4.30 2.4
Stocks-to-use % 29.3 30.8 5.1
Farm price cents/lb. 61.0 60.0 -1.6

U.S. domestic mill use is projected at 3.75 million bales, slightly above 2014/15. Mill use has
shown steady improvement from a low of 3.3 million bales in 2011/12, when cotton prices
peaked relative to polyester. Gains are projected to continue into 2015/16, due to more
competitive prices and increased efficiencies from investment. U.S. cotton mill use has been
sustained mostly by semi-processed textile and apparel exports—mainly to Mexico and the
CAFTA-DR/CBI countries—that are finished and shipped back to the United States. U.S. mill
use is also benefitting from cotton yarn shipments to China and from expanding capacity.

U.S. cotton exports are projected at 10.2 million bales in 2015/16, a decline of nearly 5 percent,
due to expectations for increased export competition from India and reduced import demand by
China. The United States is projected to account for a world trade share near 30 percent in
2015/16, below 2014/15 but one of the highest since 2010/11. Ending stocks, projected at 4.3
million bales, would be about unchanged and account for 31 percent of total disappearance,
compared with a 5-year average of 21 percent. However, U.S. stocks as a share of world stocks
are expected to remain below 5 percent, consistent with the four previous seasons.

The 2015/16 marketing year average price received by U.S. upland cotton producers is projected
to range between 55 and 65 cents per pound, with the mid-point slightly below the 2014/15
estimate of 61 cents per pound. Supporting the price projection are December 2015 cotton
futures which, as of early February, were around 63 cents per pound; likewise, prices of corn and
soybeans, the main cropping alternatives to cotton, are projected below the current season.