The U.S. and global economic situation for cotton has changed in recent years with different players, and it’s becoming a different ballgame. All segments of the cotton industry are trying to determine how to reposition themselves to continue to play “the game” competitively.
One thing to say upfront: China is such a large part of global cotton demand, we get lost in the numbers. But there are market growth and export opportunities outside of China.
Southeast is reliable supplier
Due to increased competition from corn and soybeans, cotton acreage in the Mid-South has declined and become highly uncertain. Traditionally, the Mid-South has been the source of good yields and good fiber quality. The Mid-South, which historically has accounted for about one-third of U.S. production, now chips in around 25 percent or less.
The Southeast now accounts for about one-third of U.S. production and has the acreage to do more if yields were better. Fiber quality in the Southeast has improved significantly in recent years. The Southeast, with convenient access to mills and export terminals, stands to position itself as a reliable supplier of quality cotton.
The Southwest continues to account for roughly 40 percent of U.S. production. Acreage is relatively stable as there are few if any alternatives to cotton in some areas. Yield and oftentimes high acreage abandonment are concerns that make planning and positioning difficult for not only growers but all segments of the industry.
Emergence of India
In exports, India has become major competition for the US. World cotton exports are typically 35 to 45 million bales annually. The U.S. is the world’s largest exporter, typically accounting for about 35 percent of the total. But, U.S. market share has slipped in recent years.
Among other things, exports/trade and market share are a function of demand, available supply, pricing and policy. The largest importers of U.S. cotton include China, Turkey, Mexico, Vietnam, Indonesia and Thailand. U.S. market share to China has declined over the past six to eight years although up for the 2014 crop year. This decline is worrisome since China is the world’s largest user of cotton.
While U.S. market share has declined, market share for India and Brazil has increased. India’s cotton production has doubled since 2003 (production expected to exceed China for 2015) and along with it. Their mill use and exports have increased substantially. India’s textile mill industry typically uses 20 to 25 million bales of cotton annually. India is able to supply its needs with their own production.
The mill use shuffle
World Use (demand) for cotton peaked in 2006 at 124.3 million bales. Use declined 16 percent from 2006 to 2011 and has slowly improved since 2011. For the 2014 crop year, Use was 14 million bales below 2006. Use is expected to increase just slightly (1.6 percent) for 2015.
Anytime demand or Use is mentioned, China is the focus of attention and rightfully so since China is the largest mill user of cotton. But there is an even larger picture and story that needs to be understood.
While the World Use or demand for cotton has declined and while Chinas textile mill industry has declined and largely contributed to the World decline, this decline is not evidenced everywhere. In fact, China’s decline has been partially offset by increases in other countries.
So, while we sing the blues of declining demand, this is largely in China only while the mill industry in other countries has picked up some of the slack and is actually doing more business in a declining market.
Since the peak World demand in 2006 and while overall Use has declined 10 percent from 2006 to 2015, India has increased 41 percent. Bangladesh has increased 77 percent and Indonesia 35 percent. Vietnam, once essentially a zero in terms of the World cotton picture, now has a 4 ½ million bale a year mill industry. The mill industry in former Soviet Union states Kazakhstan, Turkmenistan, and Uzbekistan has grown by 74 percent.
Cotton’s sustainability and competitiveness
There are a lot of concerns within the U.S. cotton industry. For the most part, many or at least some of the concerns can be cured by 80-cent cotton—but when is that likely? Cotton industry leadership is working to grow the demand for U.S. cotton and increase market share.
The demand for U.S. quality seems to be high, but I wonder where this has come from and why. The U.S. has always been the reliable supplier of quality fiber and mills have been willing to pay for it. So, if there’s a “shortage” of quality cotton and increased demand for U.S. quality cotton, why? Among other things, it could be due to China sitting on 68 million bales of questionable quality and the shifts in global mill business.
(Don Shurley is professor emeritus of cotton economics with Department of Agricultural and Applied Economics at the University of Georgia. He can be reached at [email protected].)