USDA Upland Cotton Baseline,
2004-13
The U.S. upland cotton sector enters the
21st century facing supply and demand challenges that
are related to both the domestic and international marketplace.
Outside the United States, cotton consumption recently
has expanded faster than production and has led to increased
trade in raw cotton. Global textile and apparel trade
has also expanded, due largely to trade liberalization
measures and the continued strength of U.S. consumer
demand for cotton products.
During the 1990s, the domestic textile and apparel
industry was the dominant customer of U.S. cotton producers, accounting
for approximately 60 percent of the total demand for U.S. cotton.
More recently, however, this share has fallen as import competition
from less expensive foreign cotton textile and apparel products
has displaced considerable demand for U.S.-produced products.
On the other hand, foreign demand for U.S. raw cotton has risen,
resulting in a larger share of U.S. cotton moving overseas. Consequently,
the U.S. cotton industry now faces increased global competition;
and the effects of these changes on the U.S. cotton sector have
been evaluated in preparation of USDA’s baseline projections,
and are reviewed here.
Each year, USDA updates its 10-year projections
of supply and utilization for major field crops grown
in the United States, including cotton (see Overview
of the USDA Baseline Process for more information).
The commodity projections are used to forecast farm
program costs and to prepare the President’s budget.
One key use of the projections is as a “baseline”
from which to analyze the impacts of potential policy
changes affecting U.S. agriculture. This discussion
summarizes the analysis underlying the cotton baseline
projections for marketing years 2004-13. Details about
the baseline projections for the U.S. macroeconomy,
other U.S. crops, U.S. livestock, the US agricultural
sector, and global agricultural trade can be found in
the Agricultural Baseline
briefing room.
Upland cotton planted area is projected to decline
slightly throughout the projection period, reflecting
improving returns for competing crops. Small increases
in cotton yield offset the lower area, leading to relatively
flat production. Meanwhile, most of the US crop will
be destined for overseas markets and global competition.
Exports became the dominant market for
US upland cotton several years ago as the domestic textile
industry faced intense price competition from imported
products. That competition continues and is largely
related to lower labor costs. The export-dominated market
for cotton is expected to remain throughout the projection
period as further reductions are foreseen for the domestic
textile industry. As a result of increased foreign competition,
US cotton demand as a share of global consumption is
likely to decline slightly over time.
The U.S. cotton industry continues to face
many of the supply and demand concerns confronting
other field
crops. However, since cotton is used primarily in manufactured
products, the industry faces additional challenges
associated
with the economic well-being of downstream manufacturing
industries.
Supply
Several factors underlie the long-term
trends that will determine US upland cotton supplies
during marketing years 2004-13.
US Upland Cotton Plantings on
a Slight Upward Trend. Upland cotton planted
area in the United States has been on a slowly rising
trend since the late 1960s, reversing the previous trend
in cotton acreage. However, the areas where upland cotton
plantings occurred have fluctuated considerably during
this period. During the mid-1970s, cotton area moved
westward as Southeast production costs rose significantly
due largely to the crop-damaging effects of the boll
weevil. By the 1990s, though, water concerns in the
West and the successful boll weevil eradication program
in the Southeast saw cotton returning eastward. Over
the past several years, upland cotton area has been
about equally divided between the eastern half (Southeast
and Delta regions) and the western half (Southwest and
West regions) of the Cotton Belt.
In addition, planting flexibility provided under
the 1996 and 2002 Farm Acts has facilitated some fluctuation in
upland cotton area as producers respond to market signals. Under
limited planting flexibility in marketing year 1995/96 (August-July),
upland cotton area reached a modern high of 16.7 million acres
as producers responded to high cotton prices. Since then, however,
prices have moderated and net return expectations for cotton and
competing crops continue to drive acreage decisions. Between 1996/97
and 2003/04, upland cotton area has ranged between 13.1 and 15.5
million acres, averaging approximately 14.2 million acres over
this period.
Production has Stronger Upward
Trend. Upland cotton production, like area,
has seen an upward movement over the past 20 years but
the trend has been more pronounced. U.S. production
gains during the previous two decades have paralleled
advances in technology (seed varieties, fertilizers,
pesticides, and machinery) and in production practices
(reduced tillage, irrigation, crop rotations, and pest
management systems). Results from these advances can
be illustrated in the record upland crop of 19.6 million
bales in 2001/02 that surpassed the previous 1994/95
high. Also, the 2003/04 yield is forecast to be a record.
Demand
Several factors underlie the long-term
trends that will determine domestic and foreign demand
for U.S. upland cotton during marketing years 2004-13.
Per Capita Cotton Fiber Demand
up Dramatically. U.S. cotton fiber demand on
a per capita basis has seen significant gains since
the early 1980s as rising incomes and consumers’
preference for cotton prompted a turnaround. Between
calendar years 1966 and 1982, per capita fiber demand
for cotton products fell considerably, declining to
only 13.5 pounds per person by 1982. Nevertheless, over
80 percent of these products were produced in the United
States during this period. That soon changed, however,
when imported products grew with the demand rebound,
as evidenced by the growing gap between mill demand
and total cotton fiber demand.
U.S. Industry Restructuring Began
in the 1980s. The U.S. textile and apparel
industry began restructuring two decades ago. First,
the apparel industry—faced with rising labor costs—began
moving offshore as labor-intensive apparel items were
finished abroad and exported back to the United States.
The Caribbean Basin Initiative and later, the North
American Free Trade Agreement sustained the U.S. textile
industry for a period as products containing U.S. components
received preferential treatment. However, trade liberalization
that began during the mid-1990s—along with the
Asian financial crisis and the strength of the dollar—diminished
these benefits.
As a result, increased import competition required U.S. mills to
reduce capacity and further modernize or exit the industry as their
customers moved overseas. Also, admission of China to the World
Trade Organization (WTO) provided additional access to the U.S.
market. Over the past 6 years in particular, the domestic industry
has faced intense competition from imported cotton textile and apparel
products that have grown considerably and supplanted U.S. cotton
mill use. While U.S. per capita cotton fiber demand has steadily
risen to 35 pounds recently, only one-third of this is now manufactured
in the United States.
Raw Cotton Exports Importance
Grows. With the declines experienced in the
domestic textile and apparel industries since 1997/98,
the relative importance of U.S. cotton exports has grown
dramatically. During the early 1980s, when U.S. cotton
mill use began a rebound, exports accounted for just
over half of the total demand for U.S. upland cotton.
As mill use grew, the export share subsequently declined.
More recently, however, raw cotton exports and their
share of U.S. demand have grown considerably as record
world cotton consumption has increased the need for
U.S. cotton overseas.
Baseline Projections for U.S.
Upland Cotton Supply and Use
Highlighted here are key findings for
U.S. upland cotton from the baseline analysis for marketing
years 2004-13. Annual projection details can be obtained
from the baseline’s U.S.
upland supply and use table.
Projected Area up for 2004/05.
U.S. upland cotton plantings in 2004/05 are projected
at 14.4 million acres, approximately 1 million above
the 2003/04 season. The increase is attributable to
several factors, including a record national yield in
2003/04 coupled with farm prices above the loan rate
for the first time in 5 years. A return to “normal”
planting weather is also expected to help boost upland
cotton area in 2004/05. However, the price gains seen
for competing crops for the upcoming season may limit
the increase in upland area in 2004/05. Planted area
in subsequent years will be based on expectations of
net returns related to changes in supply and demand;
baseline projections between 2005/06 and 2013/14 range
between 14 and 14.5 million acres. Upland cotton abandonment
for 2004 and beyond is projected at 10 percent, the
average for the previous 10 years. As a result, harvested
cotton area during the baseline period is expected to
range between 12.6 and 13.1 million acres.
Upland Yields Continue Higher.
Upland cotton yields are expected to rise slightly over
the baseline period as advancements in genetics and
technology continue to improve the long-term yield potential.
A trend growth of 2 pounds per year is projected for
the baseline period. The upland yield for the first
year of the projection period (2004/05) is 650 pounds
per harvested acre, which is approximately the average
for the previous 6 years. Although the 2004/05 yield
projection is well below the 2003/04 record, it is similar
to the 2002/03 yield and the longer historical trend.
Supply Stabilizes as Production
Offsets Demand. U.S. upland cotton supply has
declined from a three-decade high of 25 million bales
in 2001/02 and is expected to stabilize around 22 million
bales throughout the baseline period. Beginning stocks
are projected to range between 4.1 and 4.7 million bales,
while production ranges between 17.4 and 17.8 million
bales. Imports of upland cotton are expected to remain
at minimal levels over the next 10 years. Production
remains relatively flat as yield increases are offset
by lower area in the latter years of the projection
period.
During 2004/05-2013/14, U.S. upland cotton demand is generally
projected to offset production, leaving ending stocks relatively
stable. However, with the U.S. cotton industry becoming an increasingly
export-driven market, supply shocks in the United States and other
producing countries could lead to increased annual variability in
U.S. cotton demand.
Role Reversal for the Domestic
Industry and U.S. Exports. Although the U.S.
domestic industry accounted for more than 60 percent
of the total U.S. upland cotton demand in 1997/98, the
share has been cut to one-third in 2003/04, and is projected
to continue to decline over the next 10 years. The U.S.
textile industry has faced immense competition from
imported cotton products over the last 6 years and the
trend is expected to continue as WTO commitments require
elimination of the remaining quotas on textile and apparel
products at the end of calendar year 2004. By 2013/14,
the domestic industry is expected to account for only
about 25 percent of the demand for U.S. upland cotton.
In contrast, U.S. upland cotton exports are expected
to reach a record in 2003/04, accounting for two-thirds of projected
U.S. demand. As declines in the domestic industry provided additional
U.S. exportable supplies over the last several years, the gap
between foreign consumption and production provided the demand
for U.S. cotton. However, increased foreign competition in 2004/05
is likely to reduce U.S. shipments of upland cotton during the
first year of the projection period before rebounding through
2013/14.
U.S. Share of World Consumption
Declines. While rising U.S. cotton exports
have bolstered the U.S. share of global trade in recent
years, the declines experienced by the domestic textile
industry have been somewhat offsetting. As a share of
world cotton consumption, U.S. cotton disappearance
has been on a downward trend since 1994/95 when U.S.
cotton accounted for approximately 25 percent of global
consumption. In 2003/04, this share is expected to be
near 20 percent, but declines are projected throughout
the baseline period as demand for U.S. cotton remains
stable and world cotton consumption continues to trend
higher with population and income growth. By 2013/14,
the U.S. cotton demand share declines to 16 percent.
Stocks Rise Slightly Before Leveling
Off. U.S. upland cotton ending stocks and the
stocks-to-use ratio in 2004/05 are projected to be the
lowest of any year during the 10-year projection period
and are considerably lower than just a few years ago.
The record production of 2001/02 forced upland stocks
to jump significantly despite a healthy demand that
was, at the time, the third highest on record. However,
upland stocks declined between 2001/02 and 2003/04.
During the first part of the projection period, upland stocks and
the stocks-to-use ratio rise slightly. Ending stocks climb to about
4.7 million bales in 2006/07, while the stocks-to-use ratio increases
to about 27 percent. Upland stocks are then expected to level off,
as production and demand are about equal. Stocks decline to the
4.3-million-bale level during the latter part of the baseline period,
while the stocks-to-use ratio stabilizes around 25 percent, similar
to the average over the past 10 years.
Baseline Projections for World
Cotton Trade
The USDA baseline also provides projections
for trends in global
cotton trade.
Global Imports Rise Steadily.
Imports will account for about one-third of world use
of all cotton (upland and extra-long staple) in 2003/04.
This share is expected to remain relatively stable over
the next 10 years, and world cotton trade in 2013/14
is forecast at 35.6 million bales, about 10 percent
higher than in 2003/04. For hundreds of years, importing
countries have accounted for much of the world’s
cotton spinning, and as late as 1979 the imported share
of the world’s cotton spinning reached 46 percent.
Later, spinning shifted to countries that grow rather
than import cotton, and only 28 percent of global cotton
spinning used imported cotton in 1998. More recently,
major cotton growers, like China, have also become significant
importers, raising the imported share of consumption
once again.
While many factors play a role in determining cotton production,
cotton’s long growing season and need for adequate water and
sunshine limit the ability of many countries to produce. Therefore,
although the world’s four largest consuming countries—China,
India, Pakistan, and the United States—are also the largest
producing countries, many important cotton consumers—such
as Indonesia, Mexico, and Thailand—produce almost no cotton at all.
As a result,
a much
larger share of the world’s cotton is traded between countries
than is the case for grain.
Incomes, Preferences, and Policy
Drive Consumption. Economic growth primarily
determines cotton consumption. Changes in taste are
also a factor, and policy changes can shift fiber use
as well. In China and India, strong economic growth
coincided with declining cotton consumption for long
periods in the last few decades as domestic policies
encouraged rapid growth in chemical fiber production
and use. In other cases, such as in Russia and Eastern
Europe during the 1990s, income clearly influenced both
total fiber use and cotton’s share of consumer
fiber use.
After stagnating in the early 1990s, world demand
for cotton resumed its longrun growth in recent years. The world
lost about 12 percent of its demand for cotton during the early
1990s as real gross domestic product in Russia and Eastern Europe
fell by about one-third, and as yarn production shifted to countries
whose textile industries used fiber more efficiently. Demand for
cotton grew steadily and, since 1995, total world demand for cotton
has grown 1.6 percent per year. Over the 10-year projection period,
global cotton consumption is expected to grow about 1.3 percent
annually as the global economy expands slightly faster. Since
2000, developing countries have replaced North America as the
main source of global consumption gains in cotton products, and
the trend is likely to hold through 2013.
Global Production Trends Mixed.
Investment in irrigation capacity has expanded both
consuming and exporting countries’ ability to
produce cotton in recent years. China, Australia, Turkey,
and, to a lesser extent, Syria expanded irrigated acreage
for cotton during the 1990s. Turkey’s expansion
was part of an ongoing expansion likely to continue,
while a slowdown in the other countries may reflect
economic or natural constraints on expansion. In contrast,
Central Asia’s irrigated cotton area contracted
significantly, and is unlikely to rebound.
Dryland cotton area has expanded in India, West
Africa’s Franc Zone, Eastern China, and Brazil. For China
and Brazil, this represented a rebound in area back to the levels
of the mid-1990s. However, new technology has meant substantially
higher yields and production. India’s yields have grown
less, and West Africa’s yields actually regressed. In 2003/04,
India and Eastern China planted area significantly below previous
highs, and West Africa and Brazil have prospects for adding new
area in the future. The adoption of insect resistant cotton varieties
containing bacillus thuringiensis (Bt) has begun in India and
could lead to improvement in the country’s traditionally
lagging yields. Brazil’s yields are currently extremely
high and future trends there will depend on developments in insecticide
resistance in Brazil’s new tropical production zone.
Future Trade Prospects Face Uncertainties.
World trade will expand at about the 1.3-percent rate
foreseen for expansion in world cotton consumption over
the next 10 years, sustaining U.S. exports and the U.S.
share of global trade. However, the United States is
likely to face continued competition from Australia
and West Africa in the coming years. Australia’s
2001/02-2003/04 drought has highlighted the dependence
of cotton producers on weather. Australia’s ability
to produce even irrigated cotton will continue to depend
on the El Nino’s oscillations, and West Africa’s
output will depend on the longer cycles that have included
sustained precipitation since the beginning of the 1990s.
Central Asia is unlikely to return to its former status
as the leading U.S. competitor in cotton trade due to
both reduced irrigation capacity that limits production
and increased domestic production of textiles that keeps
more cotton in the region.
Brazil is expected once again to be a major competitor
of the United States. Area is expected to grow in states like Mato
Grosso, and
improving transportation should facilitate shipment to domestic
mills and for export. A number of smaller Sub-Saharan countries
outside of West Africa—such as Tanzania, Uganda, and Zambia—liberalized
their economies during the 1990s and should see production and
exports continue to expand during the baseline period.
China and India are expected to continue importing rather than
exporting. The impact of Bt cotton on India’s output is a
significant uncertainty over the next decade. China’s cotton
area in the past has been substantially higher than foreseen in
the baseline. With the adoption of Bt cotton, China would be unlikely
to import cotton if area returned to its previous highs.
U.S. Industry Is Facing Many
Issues
The U.S. upland cotton industry faces
longstanding productivity issues as well as emerging
challenges that will affect the viability of the domestic
cotton sector during marketing years 2004-13. While
technological improvements are key to reducing production
costs, the upland cotton sector continues to face competition
for area from other field crops as net returns are expected
to remain the driving force behind planting decisions.
In addition, responsiveness to the challenges of global
competition is vital for a U.S. cotton sector that has
quickly become an export-dominated market. Furthermore,
the dynamics of textile and apparel trade liberalization
remain a critical issue. Perhaps even more important,
however, is the expanding capacity for polyester fiber
and the challenge this presents to the global cotton
industry.
