MP_CN206 October 15, 1999 Spot cotton quotations averaged 225 points higher than in the previous week, according to the USDA, Agricultural Marketing Service?s Cotton Programs. The base quality of cotton (color 41, leaf 4, staple 34, mike 35-36 and 43- 49, strength 23.5-25.4) in the seven designated markets averaged 49.50 cents per pound during the week ending Thursday, October 14. Quotations averaged 47.25 cents during the previous week, and 68.43 cents during the corresponding week a year ago. Quotations ranged from a low of 48.74 cents on Monday, October 11, to a high of 50.94 cents on Thursday, October 14. The New York December futures settlement price ended the week at 54.51 cents, against 51.72 cents a week earlier. The NY March 2000 futures settlement price was 56.18 cents, compared with 53.24 cents a week ago. Southeastern markets. Spot cotton trading remained slow. Supplies were heavy. Many growers were unwilling to sell at prevailing prices. Demand was good for color 41 and better, leaf 4 and better, staple 34 and longer, mike 35-49. Demand was very light for cotton in mixed lots with a high percentage of staple 33 and shorter. Many merchants waited to receive contracted cotton before making additional purchases. In mixed lots, color 41 and better, leaf 4 and better, staple 34 and longer, mike 35-49, traded at about 300 points off New York December futures, FOB car/truck. Some growers fixed the price on previously contracted cotton. Domestic mills purchased a light volume of cotton for prompt through fourth quarter 2000 delivery. In North Alabama, favorable weather conditions allowed harvesting to continue. Harvesting was interrupted by rain in South Alabama and Georgia. Most gins had backlogs of moduled seed cotton that allowed them to continue without interruption. In North and South Carolina, harvesting expanded, but was later than normal. South central markets. Spot cotton trading was more active. Growers offered a larger volume of cotton but some were reluctant to sell at prevailing prices. Demand was very good for color 41 and better, leaf 4 and better, staple 34 and longer, mike 35-49. Similar qualities containing a large percentage of staple 33 and shorter and mike 50 and higher were in weak demand and often heavily discounted. Some merchants were busy taking delivery of previously contracted cotton and renegotiating mill contracts due to shorter staple in the crop. Mixed lots of mostly color 41 and better, leaf 4 and better, staple 34 and longer, mike 35-49, sold at around 100 to 200 points off NY December futures, FOB car/truck. Growers received around 11.5 to 12 cents per pound for 1999-crop CCC loan equities. Domestic mills purchased a light volume of cotton for prompt through second quarter 2000 delivery. Far Eastern mills purchased a light volume of cotton for prompt through third quarter 2000 shipment. Harvesting continued to make rapid progress under ideal weather conditions. Modules of seed cotton increased in fields and on some gin yards. Yields and quality were reportedly disappointing to growers. Southwestern markets. Spot cotton trading was moderately active. Supplies were heavy. Demand was very good for color 41 and better, leaf 4 and better, staple 34 and longer, mike 35-44, strength 27 and higher, free of extraneous matter. Demand for other qualities was moderately light and those qualities were often heavily discounted. Prices were higher for qualities in good demand, but were steady to slightly lower for other qualities. In mixed lots, colors 41, 32 and better, leaf 4 and better, staple 32 and longer, mike 35-49, strength 26 and higher, with limited extraneous matter, sold at around 1100-1300 points off New York December futures, FOB warehouse. Ginning remained active in the Coastal Bend, Upper Coastal Bend, and central Texas. Defoliation, harvesting, and ginning slowly gained momentum elsewhere in Texas and Oklahoma. Western markets. Spot cotton trading remained slow in the San Joaquin Valley (SJV). Supplies were light, but increased slowly as harvesting expanded. Demand was steady. Domestic mills purchased a moderate volume of cotton for nearby through fourth quarter 2000 delivery. Foreign mills made limited inquiries. Growers forward contracted a light volume of 1999-crop cotton at around 700 points on NY December futures, basis color 31 and better, leaf 3 and better, staple 35 and longer, mike 35-49, UD free, FOB gin yard. Favorable weather allowed harvesting to expand and most gins were operating. Spot cotton trading was very light in the Desert Southwest (DSW). Supplies were moderate. Demand remained about steady. A light volume of cotton sold at around 400 points off NY December futures, basis color 31 and better, leaf 3 and better, staple 34 and longer, mike 35-49, uncompressed, FOB warehouse. Similar qualities, with mike 50-52, traded at around 775 points off December. Domestic mills purchased a light to moderate volume of cotton for nearby through fourth quarter 2000 delivery. The harvest continued to expand throughout the territory. Spot trading of American Pima cotton was very light. Growers were reluctant to accept prevailing prices. Harvesting increased slowly in the DSW and was just getting underway in the SJV. Textile mill report. Domestic mills purchased a light to moderate volume of cotton for prompt through fourth quarter 2000 delivery. Demand was good for color 41 and better, leaf 4 and better, staple 34 and longer, mike 35-49. Many mills were renegotiating or canceling previously contracted southeastern and delta growth cotton, due to short staple in the crop. A few mills were booking San Joaquin Valley growth cotton to replace the cancelled contracts. Demand for fine count yarns was moderate and was good for coarse count yarns. Consumer sales of housewares and teen apparel were good; men's knitted outerwear, infant wear, women's casual apparel and hosiery were moderate; and denim were very light. Mill sales of specialty yarn, sales yarn, upholstery, and industrial fabrics were good; gray cloth were light; and domestic denim fabrics and print cloth were very light. Most mills continued to operate five to six days a week. Special upland cotton import quota #8 announced. On October 14, the U.S. Department of Agriculture announced another special import quota for upland cotton that permits importation of a quantity of upland cotton equal to one week's domestic mill use. The quota will be established on October 21, 1999, allowing importation of 41,677,786 kilograms (191,425 bales) of upland cotton. This action is being carried out under the authority of section 136 (b) of the Federal Agriculture Improvement and Reform Act of 1996, which requires that a special import quota be determined and announced immediately if, for any consecutive 10-week period, the U.S. Northern Europe price, adjusted for the value of any cotton user marketing certificate issued, exceeds the Northern Europe price by more than 3.00 cents per pound. This condition was met during the consecutive 10-week period ending October 14. Quota 8 will be established as of October 21, 1999, and will apply to upland cotton purchased not later than January 18, 2000, and entered into the U.S. not later than April 17, 2000. The quota is equivalent to one week's consumption of upland cotton by domestic mills at the seasonally adjusted average rate for the period June 1999 through August 1999. The quota is not divided by staple length or by country of origin, and does not apply to Extra Long Staple (ELS) cotton. Future quotas will be established if price conditions warrant. The following information was excerpted from the Cotton and Wool Situation and Outlook Report, released October 12, by the Economic Research Service, USDA: Demand and Stocks to Rise This Season Based on the October production forecast and carryin stocks estimated at 3.9 million bales, total U.S. cotton supplies for 1999-2000 are projected to rise 12 percent to 20.4 million. Meanwhile, total use of U.S. cotton is also projected to increase, but not as fast as production due to prevalent foreign competition in the raw fiber and textile sectors. In 1999-2000, total U.S. cotton demand is forecast to reach 15.7 million bales, 6 percent above last season but below the 5-year average of 18 million bales. These estimates reflect current policy and current levels of mill use and export activity; they do not include any additional future demand that may result from the refunding of the "Step 2" program or any other legislative proposals being discussed by Congress. With these U.S. supply and demand projections, cotton-ending stocks for 1999-2000 are projected to expand 750,000 bales from the beginning level to 4.7 million. As a result, the implied stocks-to-use ratio for the season is currently near 30 percent, similar to 1992-93. U.S. Demand to Improve but Mixed Despite the abundant supply expectations in 1999-2000, U.S. cotton mill use is projected to decline slightly. And while exports are projected to rebound this season, they are expected to remain well below the levels experienced as recently as 1997-98. For 1999-2000, U.S. cotton exports are forecast at 5.5 million bales, 1.2 million above the 1998-99 estimate. The larger U.S. supplies and a boost in foreign imports, the result of an expected rebound in world consumption, are providing the modest gain in U.S. raw cotton exports. Competition from foreign exporters was intense in 1998-99 and will likely remain formidable this season. In addition, China is projected to remain a net exporter for a second consecutive year in 1999-2000, unlike the mid-1990's when China imported large quantities of cotton from the United States. As a result, U.S. exports are expected to remain well below the robust 1994-1997 seasons. Based on the current projections of U.S. and world trade, the U.S. share of global exports is estimated at about 22 percent, up from 18.5 percent in 1998-99. For 1999-2000, U.S. mill use is currently estimated at 10.2 million bales, 2 percent below the final 1998- 99 estimate of 10.4 million. Although abundant cotton supply projections have produced a more competitive price situation with polyester staple fibers, demand for all fibers is expected to grow slowly this year. In addition, the level of cotton textile imports is expected to play a crucial role in the amount of raw cotton consumed by U.S. mills. The North American Free Trade Agreement (NAFTA) has increased cotton textile trade over the past 5 years and the strength of the dollar has also encouraged extensive foreign shipments to the United States. During the first half of 1999, for example, cotton textile imports reached 3.1 billion (raw- fiber equivalent) pounds, nearly 13 percent above the comparable period in 1998. While an annual gain in cotton textile imports is expected this season, the recent weakening of the U.S. dollar against major textile and apparel markets will help moderate the 1999-import growth. Despite expanding cotton textile exports, U.S. cotton mill use during calendar 1999 will likely fall below 5.2 billion pounds, the lowest since 1995. Foreign 1999-2000 Consumption Higher Outside of the United States, foreign 1999-2000 cotton use is forecast 2.4 million bales above its year-earlier level, a 3-percent increase, to 76.9 million bales. Foreign 1999-2000 cotton production is forecast 930,000 bales below its year-earlier level, a 1-percent decline, to 69.6 million bales. As consumption rises, international trade in cotton is also expected to rise, and foreign cotton exports in 1999-2000 are forecast 620,000 bales above their year earlier total, a 3-percent increase to 19.7 million bales. Lower foreign ending stocks are foreseen compared with a year earlier, down 1.6 million bales to 36.2 million. But, once China's 2.2 million bales ending stock decline is deducted, then higher ending stocks are forecast for the remaining foreign countries, up 550,000 bales to 21 million. Compared with September's levels, October's foreign 1999-2000 production forecast is 830,000 bales higher; the consumption forecast is 80,000 bales higher; exports 170,000 bales higher; and ending stocks 550,000 bales higher. Since China's 1999-2000 ending stocks are forecast 250,000 bales lower in October than in September, removing China from the foreign total gives a month-to-month increase for the remaining foreign countries of 800,000 bales. The increase is attributable to the larger foreign crops and increased export competition from China. October's 1999-2000 production forecast is higher due to larger expected crops in Pakistan, India, Turkey, Turkmenistan, Zimbabwe, Spain, and South Africa. Pakistan's increase is the largest, 300,000 bales, coming as higher gin arrivals, steady press reports, and a flurry of policy initiatives from the Pakistani Government all lend credence to earlier government forecasts of an improved crop. India's increase, 200,000 bales, largely reflects reports of above-average yields in northern India. Gujarat recently received some long overdue rains, and some forecasts are even higher than USDA's as a result; however, these rains have come just after the normal window for planting in Gujarat, limiting their impact. China's 1999-2000 Production Forecast at 19 Million Bales China's 1999-2000 production forecast is unchanged from the month before, remaining at 19 million bales, despite a 200,000-hectare decline in estimated area. Area is estimated lower following the release by China's State Statistical Bureau (SSB) of an estimate for 1999-2000 total cotton area that was below the estimates released earlier in the year by the Ministry of Agriculture. Since other press reports indicate that Xinjiang's 1999-2000 production is quite similar to the previous year's level, it is reasonable to assume that the province's hectarage is also quite similar. This means that 1999- 2000's entire 550,000 hectare year-to-year decline in China's cotton area occurred outside of Xinjiang. This would be a 16-percent reduction, and would likely come primarily from areas with marginal yields, particularly in light of government efforts to reduce "scattered plots." This, and the absence during 1999-2000 of any weather event remotely akin to 1998-99's Yangtze floods, suggests that average yields outside of Xinjiang could be a few percent higher in 1999-2000. Xinjiang's yields are almost 50 percent higher than those in the rest of China. Therefore, even with an average yield in Xinjiang, the increased proportion of production occurring in China's most productive region during 1999-2000 suggests a national average yield above its year-ago level. This, combined with the likelihood of slightly above-average yields outside of Xinjiang, suggests China's national yield in 1999-2000 could be 4.7 percent higher than the year before. By comparison, China's yields have risen an average of 6.3 percent annually since 1992-93. The likelihood of a relatively large crop in China during 1999-2000 in part underpins the outlook for their higher exports. A trend of rising monthly exports, aggressive pricing on world markets, and higher reported export forecasts from China resulted in a 200,000-bale increase in the forecast for China's 1999-2000 exports compared with September's forecast. At 1.2 million bales, China's exports are now forecast about 500,000 bales above their 1998-99 level. China's net exports are forecast to reach 950,000 bales in 1999-2000, their highest since 1987-88. Textile Trade Deficit Widens July textile imports of all fibers rose 46 million pounds from a month earlier to a record 1.14 billion pounds. Imports increased for the third consecutive month and were 4 percent above June and a year earlier. Larger shipments of all fibers except linen occurred in July, compared with a month ago. Increases in apparel and home furnishings more than offset slight declines in floor covering and yarn, thread, and fabric products. Cotton textile imports, at 637 million pounds, were up 1 percent from June and 4 percent above July 1998. Imports from Asia totaled 308 million pounds and accounted for 48 percent of total shipments. Larger shipments from major suppliers such as Bangladesh, India, and Pakistan were responsible for most of the increase. Textile exports, at 357 million pounds, declined to the lowest level in 5 months. July exports were 15 percent below June and 1 percent below a year earlier. Exports of all major fibers and end-use categories were below a month ago. Cotton textile exports, at 164 million pounds, were 14 percent lower than June shipments. Lower shipments to North American countries accounted for 85 percent of the monthly drop. During the first 7 months of 1999, the textile trade deficit was the largest in the past few years. The overall deficit rose to 4.0 billion pounds at the end of July, compared with 3.5 billion in 1998, and 2.9 billion in 1997. Historically, cotton textiles have accounted for the largest share of the trade deficit. Through July cotton textile imports exceeded exports by 2.6 billion pounds, representing 64 percent of the total deficit. The cotton trade deficit during the first 7 months of 1998 totaled 2.3 billion pounds. With larger textile imports this year, the annual trade deficit will likely exceed the 1998 record of 6.4 billion pounds.