mp_cn206 July 18, 2008 Spot cotton quotations averaged 125 points higher than the previous week, according to the USDA, Agricultural Marketing Service?s Cotton Program. Quotations for the base quality of cotton (color 41, leaf 4, staple 34, mike 35-36 and 43-49, strength 26.5-28.4, uniformity 81) in the seven designated markets averaged 62.61 cents per pound for the week ended Thursday, July 17. The weekly average was up from 61.36 cents reported last week and up from 59.14 cents reported the corresponding period a year ago. Daily average quotations ranged from a low of 61.60 cents on Monday, July 14 to a high of 63.08 cents on Wednesday, July 16. Spot transactions reported in the Daily Spot Cotton Quotations for the week ended July 17 totaled 7,455 bales compared with 12,504 last week and 31,586 a year ago. Total spot transactions for the season were 1,745,982 bales compared to 1,809,155 bales the corresponding week a year ago. The ICE October futures settlement prices ended the week at 70.29 cents compared to 70.61 cents reported last week. Southeastern markets. Spot cotton trading was slow. Available supplies were light. Demand was light. Average local spot prices were higher. Trading of CCC-loan equities was inactive. Inquiries from representatives of domestic and foreign mills were moderate. No sales were reported. > A light volume of color 41 and better, leaf 4 and better, staple 32-34, mike 35-50, strength 26-31, and uniformity 79-81 sold for 64.00 cents per pound, FOB car/truck (Rule 5, compression charges paid). Precipitation early in the period greatly improved soil moisture levels in many areas and provided relief from the hot temperatures. Rainfall totals ranged from one inch to three inches across the region. High daytime temperatures and cool nighttime temperatures promoted normal plant development. Most of the crop was rated at fair to good. According the NASS Crop Progress report for the week ending July 13, 34 percent of the crop had set bolls in Georgia, 30 in North Carolina, 26 in Alabama, 12 percent in South Carolina, and 8 percent in Virginia. Producers were busy irrigating crops, applying herbicides, and side-dressing with nitrogen. Aphid populations have significantly increased in Georgia; a few early reports of the aphid fungus have been received. Corn earworm and tobacco budworm pheromone trap captures significantly increased during the past seven days throughout the region, but mostly remained below the economic threshold for treatment. A few reports of spider mites have been received. Treatments for stink bugs were made on some early planted fields. South Central markets. Spot cotton trading was inactive. Available supplies were light. Demand was light. Average local spot prices were higher. Trading of CCC-loan equities was inactive. Inquiries from representatives of domestic and foreign mills were moderate. No sales were reported. > A light volume of 2006-crop cotton, color mostly 41 and 42, leaf 4 and better, mike 30-52, strength 25-30, and uniformity 77-83 sold for 44.00 cents per pound, FOB car/truck (Rule 5, compression charges paid). Warm, dry weather prevailed for most of the reporting period. The overall crop condition was good, but averaged about one week behind the five-year average. Most areas were in need of a soaking rain to promote normal crop development. According the NASS Crop Progress report for the week ending July 13, 59 percent of the crop had set bolls in Louisiana, 44 in Arkansas, 38 in Mississippi, 38 in Missouri, and 14 percent in Tennessee. Producers treated fields for aphids and plant bugs. Fieldwork included the application of herbicides and plant growth regulators. Southwestern markets. Spot cotton trading was slow in the East Texas/Oklahoma and West Texas markets. Trading of CCC-loan equities was inactive in the east Texas/Oklahoma market and west Texas markets. Supplies were light. Demand was light. Average local spot prices for east Texas/Oklahoma and west Texas were firm. No domestic or export mill inquiries were reported. East Texas/Oklahoma > A moderate volume of old-crop cotton, color mostly 41 and better, leaf 4 and better, staple 36 and longer, mike 33-52, strength 25-37, and uniformity 76-85 with around 50 percent extraneous matter (preparation, bark, and grass) traded in south Texas at around 63.00 cents, FOB warehouse (compression charges not paid). > A moderate volume of old-crop cotton, color 41 and better, leaf 4 and better, staple 33 and 34, mike 36-48, strength 26-34, and uniformity 76- 83 traded in south Texas at around 61.75 cents, same terms as above. Bolls were open in the Coastal Bend and Rio Grande Valley, and some producers were concerned recent moisture would discolor lint. Harvesting was limited but was expected to increase rapidly. Daytime temperatures were in the mid to high 90s. The crop condition in Kansas and Oklahoma was mostly fair to good. Kansas received beneficial rains that ranged from one-quarter to one-half of an inch in the cotton growing regions, while parts of Oklahoma received over two and one-half inches. West Texas > A moderate volume of old-crop cotton, color mostly 41 and better, leaf mostly 5 and better, staple 28-31, mike 35-56, strength 22-31, and uniformity 71-85 traded at around 59.25 cents per pound, FOB car/truck (compression charges not paid). > A moderate volume of old-crop cotton, color mostly 32 and better, leaf 5 and better, staple 35 and longer, mike 23-32, strength 22-34, and uniformity 75-83 with around 75 percent extraneous matter (bark) traded at around 58.75 cents, same terms as above. Thunderstorms brought much needed rain to parts of the High Plains. Accumulations ranged from one-quarter to one and one-half inches over most of the area. Daytime temperatures were in the low to mid 90s for most of the period. Recent moisture provided the crop some relief; however, more timely rains were needed to assure proper development. Some of the more mature plants were starting to bloom. Western markets. Spot cotton trading was inactive in the San Joaquin Valley (SJV). Supplies and demand were light. Average local prices were higher. No forward contracting or domestic mill activity was reported. Heat was taking a toll on the crop and water demands were rising. Temperatures were in the mid to high 90s to the lower 100s for most of the period. Most plants were squaring and some were setting bolls. Reports indicated the crop was over two weeks later than average. Insect pressure was light and easily controlled. Spot trading of Upland cotton was inactive in the Desert Southwest (DSW). Supplies were light. Demand was light. Average local prices were higher. No forward contracting or domestic mill activity was reported. Temperatures were in the mid 90s to lower 100s. Most plants were squaring and some were setting bolls. American Pima spot cotton trading was inactive. Supplies and demand were light. Industry contacts thought the crop was in mostly fair condition. Insect infestations were light and easily controlled. Reports indicated the crop was over two weeks later than average. NASS Crop Progress and Condition. As development progressed, 71 percent of cotton had reached the squaring stage, according to the Crop Progress report released July 14, 2008, by the National Agricultural Statistics Service (NASS). Squaring advanced 11 points during the week, standing 4 points behind the five-year average. Twenty-seven percent of the U.S. acreage had begun setting bolls, behind the average pace by 4 points due to late planting and a lack of moisture in some areas of the Southeast, Oklahoma, and Texas. Nationally, the crop condition was mostly fair to good. Textile mill report. Buyers for domestic mills purchased a moderate volume of mostly color 41, leaf 4, and staple 34 for January through March 2009 delivery. Inquiries for 2008-crop cotton were steady. Demand was best for color 41, leaf 4, and staple 34 for January through December 2009 delivery. No sales were reported. Additional inquiries for raw cotton for immediate-to-nearby fill-in needs were light. Inquiries through export channels were moderate. Representatives for mills in Indonesia purchased a moderate volume of color mostly 41 and 42, leaf mostly 4, and staple 33 and 34 for September shipment. Agents for mills in Peru made inquiries for a very light volume of USDA Green Card Class, color 31, leaf 3, and staple 34 for prompt shipment. The following information was excerpted from the Cotton and Wool Situation and Outlook Report, released July 11, by the Economic Research Service, USDA: The latest U.S. Department of Agriculture (USDA) forecasts for 2008/09 project that global cotton consumption will exceed the season?s new supply of cotton for a second consecutive year. The expected 8-million-bale deficit would be the largest such shortfall since 1993/94. Global cotton mill use is only projected to rise slightly in 2008/09, as world GDP growth slows through calendar 2009. However, new supplies (cotton production plus unaccounted cotton) are expected to decline 4.5 million bales to 117.9 million in 2008/09, widening the gap with consumption forecast at 125.9 million bales. The global reduction in new supplies is due primarily to the United States, where over a 5-million bale drop in production is foreseen in 2008/09. In China, cotton consumption continues to exceed new supplies, with a gap of 15.5 million bales projected for 2008/09, compared with an estimated 14.2 million in 2007/08. Domestic Outlook 2008 U.S. Cotton Production Forecast Reduced on Area Declines The U.S. cotton crop for the 2008/09 season was reduced 500,000 bales this month to 14 million, 27 percent below 2007/08 and the lowest, if realized, since the 1998 crop. The lower forecast resulted mainly from reduced area as reported in the June Acreage report. Also, a slightly higher abandonment was projected in July to reflect conditions to date in Texas. The national yield projection of 830 pounds per harvested acre was unchanged and is slightly below the 3-year average. Based on the June Acreage report, U.S. producers indicated that they had planted 9.25 million acres to cotton, 1.5 percent below the March Prospective Plantings report and the lowest since 1983/84. While 2008/09 planted area is estimated about 1.5 million acres below 2007/08, harvested area is projected 2.4 million acres lower. Conditions are less favorable in the Southwest this season, the region accounting for the majority of abandonment and where 55 percent of the total cotton area is expected in 2008/09, the largest share in 25 years. Nationally, the projected abandonment rate of 12 percent is above last season?s 3 percent but below 2006/07?s 17 percent. Upland planted area is reduced across each region, however, the declines vary considerably. The reduction in the Delta of 790,000 acres is by far the largest year-to- year change. In fact, it is larger than the 701,000-acre decline expected for the other three regions combined. The Delta region is forecast at about 2 million acres for 2008/09, the lowest since 1983, and is only slightly above the area expected in the Southeast. Upland area in the Southwest, at 4.9 million, is also the lowest in 25 years. In the West, the trend of lower acreage continues with upland area expected to fall below 300,000 acres in 2008/09. In addition, extra-long staple (ELS) plantings are forecast 90,000 acres lower than 2007/08 at 202,000 acres, the lowest in 5 years. Meanwhile, 2008 cotton crop development is below both last season and the 5-year average according to the Crop Progress data as of early July. As of July 6th, 60 percent of the area was squaring, compared with 63 percent in 2007 and for the previous 5 years. Similarly, area setting bolls was reported at 15 percent, compared with 20 percent for the previous time periods. Likewise, cotton crop conditions are currently below both last season and the 5-year average. As of July 6th, 45 percent of the U.S. area was rated ?good? or ?excellent,? while 19 percent was rated ?poor? or ?very poor.? In contrast, these ratings in 2007 were 55 and 15 percent, respectively. U.S. Cotton Demand for 2008/09 Revised Demand for U.S. cotton was reduced 400,000 bales in July to 18.9 million bales, 400,000 bales above 2007/08. Exports were reduced 500,000 bales this month, the result of lower U.S. supply projections and lower import needs by China. Lower foreign mill use projections, mainly in China, India, and Turkey, resulted in weaker demand for imported cotton globally. At 14.5 million bales, U.S. exports are expected to account for 36 percent of the global cotton trade in 2008/09, similar to that in 2007/08. U.S. mill use, on the other hand, was increased 100,000 bales this month to 4.4 million bales despite the slowing economy. While mill use is projected to decline 4 percent from 2007/08, several factors are supporting it, including the weaker dollar, overseas transportation costs, and the mill payments included in the Food, Conservation, and Energy Act of 2008. Based on these supply and demand estimates, 2008/09 ending stocks are expected to fall considerably during the 2008/09 season. Stocks are projected at 5.3 million bales on July 31, 2009, compared with estimated stocks of 10.2 million on August 1, 2008. The stocks-to-use ratio is currently projected at 28 percent, compared with 55 percent for the current season ending this month. U.S. Textile Trade: Imports and Exports Rebound in April Recent trade data indicate that April imports rose from a month earlier to 1.4 billion (raw- fiber equivalent) pounds. Increased imports of all major fibers and all major end-use categories occurred in April. Apparel imports rose 22 million pounds, accounting for over 40 percent of the increase. Cotton textile imports, at 771 million pounds, accounted for 56 percent of all textile shipments, compared with 58 percent in March. Total U.S. textile and apparel exports increased 3 percent above a month- and year earlier levels to 346 million pounds. Larger cotton and linen textile shipments accounted for the increase. Cotton textile exports, at 170 million pounds, were up 7 percent from March and 3 percent from a year ago. Overall, the April trade deficit was 1.0 billion pounds, with cotton accounting for 59 percent (600 million pounds) of the total. The April deficit increased 5 percent from March but was 3 percent below a year earlier. The deficit for the first 4 months of 2008 totaled 4.3 billion pounds, compared with 4.5 billion for the same period of 2007. Imports of textile and apparel products are 5 percent (291 million pounds) below 2007 levels, while exports are only down 2 percent (23 million pounds). International Outlook World Cotton Stocks Tighten, Prices Higher in 2008/09 World cotton production in 2008/09 is forecast 4 percent lower than the year before, down 5 million bales to 115 billion. Consumption is forecast to grow 1.3 percent in 2008/09, a 1.7-million-bale increase to 126 million bales. While 3 million bales in global estimate of cotton from unaccounted source will help bridge the gap between production and consumption, ending stocks are expected to fall significantly, down 8 million bales to 53 million. The 8-million-bale decline is equivalent to 6.4 percent of current world consumption, only slightly smaller than the 6.9-percent decline as a share of consumption that occurred in 2003/04 ending stocks. Cotton production is expected to fall in 2008/09, despite a 20-percent increase in the inflation-adjusted price of cotton in 2007/08. Corn, wheat, and soybean prices rose by even larger margins?soybean prices rose 63 percent in inflation-adjusted terms. Cotton consumption is expected to increase by a relatively small amount in 2008/09. While the expected 1.3 percent increase in global consumption is larger than the 0.8 percent increase reported for 2007/08, it is well below the 3.4 percent annual average growth rate realized during 1996-2006. Growth in world incomes has slowed from the relatively high rates seen in recent years, and cotton prices have strengthened relative to competing fibers. Global ending stocks of cotton (excluding China) are expected to be their smallest relative to consumption in more than a decade (fig. 3). Stocks are expected to be only slightly tighter than in 2003, but with the change in the foreign exchange value of the dollar, and higher prices for petroleum, corn, and other commodities, the mid-point of USDA?s U.S. upland farm price forecast for 2008/09 is 66 cents, compared with a 62 cent price in 2003/04. Turkey?s Cotton Production To Plunge in 2008/09 Turkey?s 2008/09 cotton production is forecast at 2.6 million bales, down 16 percent from the previous year. That output will represent the lowest in almost two decades, and the second consecutive year that Turkey suffers a significant production decline?in 2007/08, production dropped 18 percent from the previous year. Prime culprits range from rising food prices which gives farmers incentives to plant corn and wheat instead of cotton; rising costs of inputs such as fuel, fertilizer, and seed; limited irrigation infrastructure; and unfavorable weather conditions. In 2008/09 cotton acreage is projected at 400,000 hectares, a 23-percent decline from last year and the lowest in six decades. Earlier this year, the government of Turkey unveiled the plan for the completion of the Southeastern Anatolia Project (GAP). At its inception almost forty years ago, the primary aim of the project was the development of irrigation facilities and soil resources. Over the years, the GAP has evolved into a broad based socio-economic and infrastructural development project that will improve not only the Marmara and Anatolia regions but the entire nation of Turkey. In the Aegean, Hatay, and Southeast Anatolian regions in particular?where the lack of adequate rainfall and water resources has taken its toll on cotton production in recent years?the revival of the GAP comes as a welcomed relief. The project, scheduled to be completed by 2012, would boost cotton production and overall agricultural productivity. On the other hand, Turkish officials have adopted policies that do not augur well for increased cotton production. There has been a recent increase in the value-added tax (VAT) on domestic cotton trade from 1 percent to 8 percent. Government?s production support payments to cotton farmers have remained unchanged from last year at about US $0.27 per kilogram, despite rising input costs. And there is no well-defined timeframe for such payments to farmers, creating uncertainty. All of the foregoing factors could dampen both cotton trade and production. Turkey?s Cotton Imports To Rise, Exports Remain Flat in 2008/09 Turkey, the world?s second largest importer of cotton is expected to import 3.4 million bales of cotton in 2008/09, a 150,000-bale (5 percent) rebound from the previous year when overseas purchases slid by more than 20 percent. A strong Turkish currency, the lira, and declining domestic cotton production far short of high domestic consumption are factors behind the cotton import expansion. A significant part of the imports will be supplied by the United States, where Turkish purchases of cotton have risen steadily over the years. The reliability and quality of supplies and the availability of the Export Credit Guarantee Program (GSM-102)2 make the U.S. cotton more attractive to Turkey. There has been growing official concerns over the adverse effects of increasing cotton yarn imports (mainly from Pakistan) on domestic spinners. Consequently, the Turkish government last month imposed an import duty of $1.03 per kilogram on imported cotton yarn, which is scheduled to last for 200 days. Cotton exports are projected at 225,000 bales in 2008/09, showing no change from the previous year. The bulk of the cotton exports will go to the Mersin and Kayseri free- trade zones in Turkey. Cotton Consumption in Turkey Continues To Decline in 2008/09 Cotton consumption in Turkey is forecast at 6 million bales in 2008/09, a 5-percent drop from the 2007/08 estimate. It will be the first time in over four decades that the world?s fourth largest cotton user experiences a two-successive year reduction in consumption. Behind this downward trend is a slow Turkish economy in which consumer confidence remains low. The textile industry in Turkey is currently facing turbulent times, with some mills either selling their equipment abroad, or relocating offshore where business conditions are favorable. Earlier this year, one of the nation?s largest firms, Sanko Tekstil Isletmeleri A.S., shut down, accounting for a significant loss in milling capacity in the country. The share of cotton imports in consumption has been increasing over the years. In 2008/09, the import share of cotton use is estimated at 56 percent?the largest on record (fig. 4). The effect of declining cotton production on consumption is expected to be partly offset by rising imports due to a strong lira. Turkey is also expected to draw from its beginning stocks which are forecast at about 1.7 million bales?down 225,000 bales from a year earlier.