New York, New York
June 27, 2008
Despite 2008's U.S. cotton acreage
forecast at its lowest level in more than 20 years, the
long-term outlook for cotton appears promising. Changes in the
global sector and an improved U.S. economy are likely to
increase textile demand, and with it demand for cotton,
according to a new Rabobank
report, "U.S. Cotton."
"This ailing patient, the U.S. cotton sector, shows every sign
of a great recovery -- it just may need at least another year to
recuperate," said report author and Rabobank Food & Agribusiness
Research and Advisory (FAR) Vice President Michael Whitehead.
"While the long-term outlook for the cotton sector in the United
States is favorable, the sector may still endure some pain
before things improve."
U.S. Production
U.S. cotton acreage fell by almost 30 percent in 2007-08, to
approximately 11 million acres -- its lowest level in 20 years.
Cotton acreage reductions were large across all the major cotton
growing regions, ranging from a 21 percent fall in California
and Arizona to a 35 percent drop in the Delta region (Arkansas,
Louisiana, Mississippi, Missouri and Tennessee). And, these
numbers are likely to fall further. With the prices of corn,
soybeans and wheat forecast to remain strong, growers are likely
to continue to move away from cotton.
The forecast for the 2008-09 year shows that cotton acreage is
forecast to continue falling, declining another 13 percent to
just over 9.4 million acres -- the lowest level since 1983.
"Acres in the Delta region are likely to see a larger decrease,
approximately 30 percent, a change which would see that region
losing over half its cotton area in just two years," said
Whitehead. Decline in other areas is not likely to be as severe.
"Despite the relatively low acreage, in the long term, the U.S.
cotton sector is likely to strengthen, largely due to changes in
the global sector," said Whitehead. "The U.S. cotton sector is
likely to improve as major global cotton producers -- such as
China and India -- increasingly divert more acreage into food
production to keep pace with rising incomes and populations.
This would likely raise the price of cotton and entice U.S.
farmers to increase their cotton acreage."
Global Production
In contrast to the big fall of cotton acreage in the United
States, cotton acreage in China grew slightly, although with
lower yields. However, going forward, the outlook for China's
cotton acreage rests on a couple of scenarios. First, cotton
production could receive a boost from the Chinese government's
plan to provide 500 million Chinese Yuan for farmers to buy
improved cotton seeds, which would enhance overall yields.
Second, with an increased focus on food security, China is
likely to increase its domestic production of grain and oilseed
foodstuffs, which would cut into cotton acreage. Additionally,
with the government focused on building food stocks, cotton
production may decrease and force China to look elsewhere for
cotton sources -- such as Africa.
"While cotton production in Africa continues to have great
potential, growth is slow and volatility is ever present," said
Whitehead. "Additionally, with low yields compared to world
averages, the region may benefit from increased international
focus -- in terms of multilateral agronomic development -- and
an increased focus from the private sector outside the region
that is seeking to develop new resources."
In contrast to falling acreage levels and forecast drop in
production in the United States, Indian cotton production
continues to break records. Production in 2007-08 is likely to
rise around 10 percent to more than 24 million bales, which
represents an 83 percent increase over the previous 10 years,
though growth is forecast to slow to 5 percent in 2008-09.
"The main reason for the success of India's cotton program has
been the implementation of a government program that targeted
improvements in seeds, extension services, marketing
infrastructure and processing facilities," said Whitehead.
Consumption
The economic slowdown, which is forecast through at least 2008,
is likely to see the demand for cotton affected more than most
major soft commodities. The rising cost of food, brought on by
higher grain and oilseed prices, leaves less income available
for textile purchases. Additionally, cheaper artificial fibers
are becoming more attractive. After growing by an average of
more than 7 percent the prior three years, global cotton
consumption growth is forecast to slow to less than 2 percent in
2007-08. With the economic slowdown forecast to continue for
most of 2008, at least, consumption growth in 2008-09 could fall
further to 1 percent. Despite this, forecast economic growth
from 2009 is likely to see consumption growth begin to recover.
Global cotton consumption also continues to face competition
from artificial fibers on a number of fronts. Despite synthetic
fibers becoming more expensive on the back of oil prices, the
sharper growth in cotton prices has made synthetic alternatives
a more attractive proposition for mill use and retail
consumption -- particularly in developing countries. Added to
this is the long-term factor of the technological advances in
artificial fibers, making them increasingly attractive in
comparison to cotton across all demographics.
Outlook
"Assuming that current trends, in terms of strong demand and
upward price pressure for grains and oilseeds continues into
2009, it would be reasonable to predict that 2009-10 U.S. cotton
acreage is unlikely to see a major increase, if any increase at
all," said Whitehead. "However, as the economic slowdown eases,
textile demand is likely to strengthen again, and with it demand
for cotton."
Globally, the United States is in a strong position to maintain
a viable cotton growing segment. Developing countries such as
China and India are likely to lose acreage to expanding food
crops and urbanization. Additionally issues of the availability
of water in places such as Australia, Uzbekistan and Africa,
place questions on the viability of their long-term crop.
"So, as global cotton prices react to any future cut in supply,
U.S. cotton growers will be ideally placed to benefit," said
Whitehead.
The premier bank to the global food and agriculture industry,
Rabobank is a global financial services leader providing
institutional and retail banking and agricultural finance
solutions in key markets around the world. From its century-old
roots in the Netherlands, Rabobank has grown into one of the 25
largest banks worldwide, with over $800 billion in total assets
and operations in over 35 countries. Rabobank is the only
private bank in the world with a triple A credit rating from
both Standard & Poor's and Moody's, and is ranked among the
world's safest banks. In the Americas, Rabobank
(www.RabobankAmerica.com) is a leading financial partner to the
entire American food and agribusiness industry and is a
specialist in sophisticated, customer-driven solutions in the
Global Financial Markets and Corporate Finance arenas. Rabobank
also provides retail and commercial banking services in
California; leasing; and real estate lending, operating loans,
input financing and crop insurance to American agricultural
producers, input suppliers and agricultural manufacturers. |
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