Cotton acreage up as mid term outlook brightens
February 14, 2018
U.S. cotton producers intend to plant 13.1 million acres this spring, up 3.7 percent from 2017 as prices for other commodities remain low and several positive factors point to a more optimistic outlook for the cotton industry over the next few years, the National Cotton Council said at its annual meeting in Fort Worth this weekend.
The NCC's 37th Annual Early Season Planting Intentions Survey was mailed in mid December to producers across the 17-state Cotton Belt and responses were collected in January. NCC delegates were reminded that these expectations are a snapshot of intentions based on market conditions at survey time. Actual plantings will be influenced by changing market conditions and weather.
Upland cotton intentions are 12.8 million acres, up 3.8 percent from 2017, while extra-long staple (ELS) intentions of 254,000 acres represent a 1 percent increase, the survey said.
Jody Campiche, the NCC's vice president, economics & policy analysis, said, "Planted acreage is just one of the factors that will determine supplies of cotton and cottonseed. Ultimately, weather, insect pressures and agronomic conditions play a significant role in determining crop size."
She said that with abandonment assumed at approximately 15 percent for the United States, Cotton Belt harvested area totals 11.1 million acres. Using an average U.S. yield per harvested acre of 842 pounds generates a cotton crop of 19.4 million bales, with 18.7 million upland bales and 744,000 ELS bales.
"History has shown that U.S. farmers respond to relative prices when making planting decisions," said Campiche.
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"During the survey period, cotton futures prices were stronger relative to competing crops," she said. "The price ratios of cotton to corn and soybeans are more favorable than in 2017. However, soybeans are expected to provide competition for available acres in 2018, due in part to the lower production costs relative to cotton."
"While cotton prices have improved relative to other crops, cottonseed prices are at the lowest level since the 2006 marketing year, thus increasing the net costs of ginning," Campiche said.
The cotton council reported that far west producers are expecting to plant 293,000 upland cotton acres — a 6.8 percent decrease from 2017. Arizona is responsible for the largest decrease, with California acreage down slightly and New Mexico acreage up slightly. The survey results for Arizona suggest a shift from upland cotton to ELS cotton, corn, and "other crops." In California, growers intend to plant more wheat and corn.
Campiche said that in recent months, cotton prices have maintained a stronger appearance despite the increase in world production. Although the current supply and demand fundamentals appear somewhat bearish, she said, strong U.S. export sales, a weaker U.S. dollar, heavy speculative buying, and large mill fixations have supported prices. For the coming year, projections of record-ending stocks outside of China could pressure prices.
But she added that the improving world economy has led to higher world cotton demand.
"World mill use is expected to exceed world production in the 2018 marketing year, and global cotton stocks are projected to decline by 5.4 million bales in the 2018 balance sheet," Campiche said. "China's stocks are declining with USDA estimating a drop of 8 million bales in 2017. In 2018, an additional 10 million bale reduction in total stocks is expected."
She noted that export markets continue to be U.S. raw fiber's primary outlet. The United States will remain the largest cotton exporter with a market share of 39 percent in 2017 as compared to 40 percent in 2016.
China is currently the top export market for the 2017 crop year, followed by Vietnam and Pakistan. World trade is projected to be higher in the 2017 marketing year, but increased competition from other major exporting countries has led to a decline in the U.S. market share.
For 2017, the NCC estimates U.S. exports at 15.million bales, up 0.6 percent from 2016. Regarding domestic cotton mill use, Campiche said 2017 U.S. mill use is estimated at 3.4 million bales, up 100,000 bales from 2016. The Economic Adjustment Assistance Program continues to be an important source of stability allowing mills to invest in new facilities and equipment, she said. For 2018, the NCC is projecting a modest increase in U.S. mill use of 60,000 bales.
However, shipments have been lagging behind sales during the first half of the marketing year. While several factors led to shipping delays earlier in the marketing year, trucking shortages, along with increased trucking costs, currently are affecting cotton shipments. The shipment pace has increased over the past few weeks and will need to remain strong for the remainder of the marketing year to reach the 15 million bale estimate.
Looking ahead to 2018, increased competition from other cotton-producing countries is expected to reduce both U.S. exports and U.S. market share. With exports pegged at 14.3 million bales, Campiche projects total U.S. offtake of 17.7 million bales in 2018, leading to an increase in ending stocks of 1.5 million bales.
Campiche concluded that "although the survey results suggest a slight increase in acreage, the increase is largely the result of weaker prices of competing crops."