Was it technology or weather that produced the huge cotton crops of the world in 2004? While the debate is certainly not over, according to Peter Egli, a market analyst with Volcot America, Inc, it was mostly good weather that graced world growths last year, and it's very likely that a return to normalcy in world cotton yield is in the offing.
Egli, speaking at the Cotton Roundtable in New York City on July 8, said, “We had an incredible production increase of 24.5 million bales from 2003 to 2004, going from 95.1 million bales to 119.6 million bales. The biggest crop before that was 98.8 million bales in the 2002 season.”
Next season, world cotton acreage is expected to decline by a little over five percent overall, while yields are expected to drop to an average of 600 pounds per acre, according to Egli. This forecast, if realized would still be the second highest yield ever. Last year's world crop averaged 640 pounds per acre.
These yields would produce a world crop of 105.4 million bales, “but we must realize that this number is nothing more than a starting point.”
Egli pointed out that forecasters are still trying to figure out why last year's world crop was so good. “Were the yields of last year an aberration or are we at the beginning of a new yield plateau? The last time yields jumped to a new plateau was in 1984-85, with an increase of 27 percent over the previous five-year average. Yields were maintained at this level for the years to come.
“Interestingly, since then we have seen only slight increases in world yields. The five-year average today is only about 8 percent higher than in 1984. While I believe that the combination of technology and weather led to the 2004 record crop, I believe that weather played the bigger role. We didn't just hit a home run last season, we hit a grand slam. Therefore, for the current season, we should not set our yield expectations too high.”
Egli pointed out that technology is not widespread in areas that produced large crops. “While technology has certainly made great strides in recent years, especially in the Indian sub-continent, the ‘biotech’ cotton areas account for only about 26 percent of all the cotton planted in the world, according to the International Cotton Advisory Council.”
Egli noted that the 10-year world yield average prior to this season was 534 pounds and the five-year average was 553 pounds. “This season, we were 21 percent and 17 percent, respectively, above these averages.
“The yield debate is incredibly important,” he said. “Even if world yields match the second-best record prior to last year, 570 pounds, we would have a crop of 100.2 million bales, which would still be the second largest crop on record.
“Those who believe that technology has become a much more determining factor than weather will expect much higher production. I personally believe we need to be careful not to get carried away just because we had one good year.”
Here's how Egli sees world production in major cotton producing countries in 2005. He pegged U.S. production at around 19.8 million bales.
China — Egli sees a 12-percent reduction in acreage, with yields down slightly as well. This would produce a crop of 25 million bales, about 4 million bales less than last year. “There have been some issues with dry conditions in the northeastern cotton-producing regions, but timely rains over the last few days have improved the situation.”
India — Production is also expected to decline. “If there is one place where seed technology will make great strides in the coming years, it's India. Last year, India produced a record yield of 391 pounds, compared to 344 pounds the year before and a 10-year average of 275 pounds.
“So just over the last two years, yields have jumped by roughly 42 percent. Bt cotton certainly helped things along in India, but they did have a very beneficial monsoon season in 2004. The intermittent rain pattern allowed them to sow cotton for a longer period than normal, and insect pressure was much lower.
“This year, after a slow start, Indian's monsoon season is progressing, although some areas have seen some heavy flooding, which will require some replanting. At the same time, some states in the south could use some more rain.”
Egli projects an average yield of 340 pounds this season for India, “which would produce about 15.3 million bales, 2.8 million bales under the current season.”
Pakistan — Pakistan is maintaining its current cotton acreage. “The crop is doing well at the moment. But we don't expect to see record yields again. We look for a crop of around 9.8 million bales.”
West African countries — “We should also see a drop in their production as enthusiasm for cotton has dropped in lieu of the strong Euro. Their acres declined about 10 percent.”
Central Asia — “We look for slightly lower yields and a crop about 500,000 bales smaller than last year.
While world growers were producing the biggest cotton crop in history in 2004, the world's mills were spinning it. Mill consumption hit a record 108 million bales in 2004, up 9.7 million bales, or nearly 10 percent, from the year before. “That led to a production surplus of 11.6 million bales, one of the larger production surpluses in recent history, but still below the 17.9 million bale surplus in 1984.”
Production still outpaced consumption in 2004 and world ending stocks are projected to jump from 37.4 million to 48.7 million bales, an increase of 11.3 million bales. This is close to the same ending stocks figure of 1999-2001, noted Egli. But the rise in consumption has pushed the stocks-to-use ratio lower. The current ratio is the third lowest over the last 10 seasons.
There has been a dramatic change in where stocks are located, according to Egli. “China's stocks-to-use ratio has gone from 70.5 percent in 2001 to 19.5 percent in the current season. It is projected to go even lower, to 17.7 percent, by the end of the current marketing year.
“In contrast, the rest of the world saw their stocks-to-use ratio rise from 41.1 percent in 2001 to 59 percent in the current season. This is the highest ratio since the mid-1980s. Even with the expected drop in stocks next season, the stocks-to-use ratio will remain at a rather elevated 52.2 percent for the rest of the world (outside China).”
Egli noted that roughly half of the stocks increase in the world has occurred in India and Pakistan, “which are not likely to pressure the bull market with those supplies.”
China's stocks represent two months of consumption, “so they will have to import sizable amounts this summer. The rest of the world has plenty of cotton to spare, with over seven months of consumption.”
Despite these large stocks, “cotton prices have held up well and New York futures are currently trading about 20 percent higher than they were at the same time last year (as of July 8).”
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