Cotton

Cotton is a natural vegetable fiber that comes from small trees and shrubs of a genus belonging to the mallow family, one of which is the common American Upland cotton plant. Cotton has been used in India for at least the last 5,000 years and probably much longer, and was also used by the ancient Chinese, Egyptians, and North and South Americans. Cotton was one of the earliest crops grown by European settlers in the US.

Cotton requires a long growing season, plenty of sunshine and water during the growing season, and then dry weather for harvesting. In the United States, the Cotton Belt stretches from northern Florida to North Carolina and westward to California. In the US, planting time varies from the beginning of February in Southern Texas to the beginning of June in the northern sections of the Cotton Belt. The flower bud of the plant blossoms and develops into an oval boll that splits open at maturity. At maturity, cotton is most vulnerable to damage from wind and rain. Approximately 95% of the cotton in the US is now harvested mechanically with spindle-type pickers or strippers and then sent off to cotton gins for processing. There it is dried, cleaned, separated, and packed into bales.

Cotton is used in a wide range of products from clothing to home furnishings to medical products. The value of cotton is determined according to the staple, grade, and character of each bale. Staple refers to short, medium, long, or extra-long fiber length, with medium staple accounting for about 70% of all US cotton. Grade refers to the color, brightness, and amount of foreign matter and is established by the US Department of Agriculture. Character refers to the fiber’s diameter, strength, body, maturity (ratio of mature to immature fibers), uniformity, and smoothness. Cotton is the fifth leading cash crop of the US and is one of the nation’s principal agricultural exports.

Cotton futures and options are traded on the New York Cotton Exchange, a division of the New York Board of Trade. Cotton futures are also traded on the Bolsa de Mercadorias & Futuros (BM&F). Cotton yarn futures are traded on the Central Japan Commodity Exchange (CCOM) and the Osaka Mercantile Exchange (OME). The New York Cotton Exchange’s futures contract calls for the delivery of 50,000 pounds net weight (approximately 100 bales) of No. 2 cotton with quality of Strict Low Middling and a staple length of 1-and-2/32 inch. Delivery points include Texas (Galveston and Houston), New Orleans, Memphis, and Greenville/Spartanburg in South Carolina.

Prices – Cotton prices on the New York Board of Trade nearest futures chart started 2003 near 50 cents/pound and then showed a fairly steady rally during the year to post an 8-year high of 85 cents in October, finally closing the year near 75 cents. Bullish factors during 2003 included very tight stocks, aggressive Chinese import buying, the upward rebound in the US economy, and the weak US dollar.

Supply – World cotton production in 2003/4 was forecast at 92.195 million bales (480 pounds per bale), up 4.5% from 88.184 million in 2002/3 (USDA as of Jan-2004). World ending stocks for 2003/4 are forecasted at 32.358 million bales, down 12.5% from 36.971 million in 2002/3. The world’s largest cotton producers are China with 30.200 million bales of production in 2003/4 (representing 24% of world production), the US with 18.224 million bales (20%), India with 12.7 million bales (14%), and Pakistan with 7.600 million bales (8%).

US cotton production for 2003/4 was forecast at 18.224 million bales, up 5.9% from 17.209 million in 2002/3. US ending stocks for 2003/4 are forecasted at 4.250 million bales, down 21.1% from 5.385 million in 2002/3. US farmers planted 13.631 million acres of cotton in 2003/4, down from 13.958 million in 2002/3, and harvested acres were also lower at 12.107 million versus 12.427 million in 2002/3. However, yields were higher in 2003/4 at 722 pounds/acre versus 675 pounds in 2002/3, thus leading to the 6% increase in production in 2003/4. The leading states with US cotton production in 2002/3 were Texas (with 9.7% of US production), Georgia (5.0%), Mississippi (4.9%), Arkansas (4.1%), and California (3.5%). Texas saw a big 17% decline in production in 2002/3, but there were large increases in South Carolina (+152%), Alabama (+44%), Louisiana (+38%), Georgia (+36%) and North Carolina (+36%).

US production of cotton cloth has fallen sharply in the past three years to below 4 billion square yards to 3.524 million in the latest full reporting year of 2002. That illustrates the movement of the textile industry out of the US to low-wage foreign countries.

Demand – World consumption of cotton for 2003/4 was forecast at 97.111 million bales, down slightly by –0.8% from 97.923 million in 2002/3. That consumption of 97.111 million in 2003/4 far outstripped the production level of 92.195 million, a bullish factor for prices. That was the second consecutive year in which consumption was higher than production, thus leading to the sharp drawdown in stocks. Consumption of cotton continues to move toward countries with low wages, which are becoming the main producers of cotton products. The largest consumers of cotton are China (31%), India (14%), and Pakistan (10%). US consumption was forecast at 6.200 million bales in 2003/4, down -14.7% from 7.269 million in 2002/3. US consumption of 6.200 million in 2003/4 was far below US production of 18.224 million, allowing the US to be the number one world exporter of cotton by far.

Trade – World trade in cotton in 2003/4 is forecasted to rise about 5% to 32 million bales from the previous year. The world’s largest exporters of cotton in 2003/4 are forecasted to be the US with 13.200 million bales (41% of world exports), Uzbekistan (9%), and Brazil (5%). Brazil in 2003/4 is projected to show a sharp 237% increase in cotton exports. A decline in exports of -38% is projected for Australia for 2003/4, -14% for Uzbekistan, and a -15% decline for Greece. US cotton exports in 2003/4 are projected to rise 11% to 13.200 million bales from 11.900 million in 2002/3, largely due to increased Chinese demand. The main destinations for US exports in 2003/4 were forecasted to be China (16%), Mexico (16%), Indonesia (7%), Taiwan (5%), and Thailand (5%).

The world’s largest importers in 2003/4 are forecasted to be China with 7.000 million bales (22% of world imports) and Indonesia (7%). China’s imports in 2003/4 rose sharply by 124% from the previous year, clearly a major driving factor for world cotton demand and prices.