January 5, 2001

By Lana Robinson
Field Editor

Some signs of recovery may be on the horizon for cotton, with the recent lowering of production estimates by USDA and an outlook indicating improved export demand.

According to Jose G. Pena, Extension economist in Uvalde, USDA's December 12, 2000 supply/demand estimate reflected slightly lower production and mill use while ending stocks remained unchanged.

"Production was decreased 111,000 bales from the November estimate of 17.51 million bales, mainly reflecting lower production in Texas, but partially offset by higher production in California," said Pena. "Domestic mill use was reduced 100,000 bales, based on weak cotton consumption to date and a slowdown in overall textile business. Forecast ending stocks remain at 3.9 million bales, 22.3 percent of total use."

The world 2000/01 cotton situation, however, has been changed and now reflects higher stocks relative to November, with minor adjustments to total production, consumption, and trade.

Significant changes are made to production in several countries: Increases for Syria, Brazil, and Turkey nearly offset decreases for India, Uzbekistan, the African Franc Zone countries, the United States, and Australia. World consumption was reduced slightly, reflecting decreases for India, Mexico, and the United States, partially offset by increases for Brazil and Russia. The reduction in estimated 2000/01 consumption, combined with a significant increase in estimated consumption for 1999/2000, have reduced this season's consumption growth rate to a marginal 0.4 percent. Total estimated world ending stocks were raised 1.7 percent from November.

Dr. Carl Anderson, professor and Extension economist-cotton marketing, expects December 2001 futures to trade in the 62-72 cent range during the year ahead. Producers are advised to watch for a probable seasonal price peak in the spring. It appears that the "A" Index might trade in the 65-75 cent range next year. As a result, no loan deficiency payment (LDP) is expected for the 2001/02 season. In total, the market situation for the new crop appears stable to slighty higher.

"A large number of producers will be dependent on the Farm Service Agency (FSA) guaranteed loan program for financing next year's crop," said Anderson. "Given the current expectations for at least the same amount of Texas and U.S. cotton acreage next year, the price outlook is for another year of prices below the cost of production. The federal farm program safety net does not appear adequate to meet production costs, foreign textile competition, and increased competition from synthetic fibers."

The stocks-to-use ratio is close to 38 percent, indicating cotton is still available at reasonable prices to users, Anderson noted. If the stocks-to-use ratio moves downward toward 35 percent, he said the market would likely turn bullish.

"Producers need a marketing plan. Either understand how best to forward price yourself, hire a marketing advisor, or join a marketing association," Anderson advised, adding that many growers are considering participating in a marketing association or cotton pool to reduce the risk of selling during a weak market period.