Southern Regional Outlook ConferenceSouthern Regional Outlook ConferenceAtlanta, GeorgiaAtlanta, GeorgiaSeptember 27, 2000September 27, 2000

Cotton Situation and OutlookCotton Situation and Outlook

bybyCarl G. AndersonCarl G. Anderson

Professor andProfessor andExtension Economist-Cotton MarketingExtension Economist-Cotton Marketing

Texas Agricultural Extension ServiceTexas Agricultural Extension ServiceTexas A&M UniversityTexas A&M University

College Station, Texas 77843-2124College Station, Texas 77843-2124

Next

Previous

World CottonWorld Cotton2000/012000/01

““A” Index is up 11 cents from September A” Index is up 11 cents from September a year ago.a year ago.

Production is the same.Production is the same. Consumption is up 5 million bales.Consumption is up 5 million bales. World stocks are down 7 million bales.World stocks are down 7 million bales. More use, less stocks implies higher More use, less stocks implies higher

prices.prices.

Next

Previous

World Cotton Supply and DemandWorld Cotton Supply and DemandMillion BalesMillion Bales

2000/01 2001/02

Beginning Stks.Production

39.9286.75

34.3590.23

Total Supply 126.67 124.58

Mill UseEnding Stks.

92.5734.35

92.0033.61

Stocks/Use“A” Index

37.1161.23

36.5371.00

Sources: USDA/WASDE Supply/Demand 2000/01, 9/12/002001/02 projected by Carl Anderson; 2001/02 price by ICAC

Next

Previous

Economic IssuesEconomic IssuesU.S. has strong economy and dollarU.S. has strong economy and dollarMore textile importsMore textile importsAsian economies - improving slowlyAsian economies - improving slowlyEurope weakEurope weakPolyester price upPolyester price up Implies strong demand for cottonImplies strong demand for cotton

Next

Previous

Cotton: World Stocks/Use Vs. “A” IndexCotton: World Stocks/Use Vs. “A” IndexAugust 1990 - September 2000August 1990 - September 2000

020406080

100120

Cen

ts/L

b. a

nd R

atio

Stocks/Use "A" Index

Next

Previous

Cotton: World Production, Consumption, Cotton: World Production, Consumption, Stocks/Use, and “A” IndexStocks/Use, and “A” Index

Monthly

60

70

80

90

100

Mill

ion

480

Lb. B

ales

0

20

40

60

80

100

120

Price and Ratio

ProductionConsumption

"A" Index

Stks/Use

Next

Previous

Foreign Cotton Production, Use, %Foreign Cotton Production, Use, %Stocks/Use and “A” Index,Stocks/Use and “A” Index,

1980/81-2001/20021980/81-2001/2002

0

20

40

60

80

100

80/81

83/84

86/87

89/90

92/93

95/96

98/99

2001

/02

Mill

ion

Bal

es

0

20

40

60

80

100

Cen

ts/L

b.

Stks/Use Prod Cons. A Index

Next

Previous

Foreign Cotton Area and “A” IndexForeign Cotton Area and “A” Index

62646668707274

Mil.

Har

v. A

cs.

405060708090100

Cen

ts/L

b.

Harvested Acres "A" Index

Next

Previous

““A” Index Versus Exporting Nations A” Index Versus Exporting Nations Stocks to Domestic Use PercentStocks to Domestic Use Percent

20

40

60

80

100

Cen

ts/L

b.

0

20

40

60

80

100

Rat

io

"A" Index Exp. Nations Stks/Use

Next

Previous

China: Production, Consumption, China: Production, Consumption, Imports, Exports, and Ending StocksImports, Exports, and Ending Stocks

0

5

10

15

20

25

30

Mill

ion

Bal

es

Imports Exports Prod. Cons. Ending Stks.

Next

Previous

China: “A” Index and Ending StocksChina: “A” Index and Ending Stocks

0

20

40

60

80

100

Cen

ts/L

b.

0

5

10

15

20

25

Million B

ales

"A" Index Ending Stks.

Next

Previous

Cotton: World Ending Stocks Cotton: World Ending Stocks Showing China Ending Stocks, Showing China Ending Stocks,

1990/91 - 2000/011990/91 - 2000/01

0

10

20

30

40

50

1990 91 92 93 94 95 96 97 98 1999 2000

Mill

ion

Bal

es

World Ending Stocks China Ending Stocks

Next

Previous

China Cotton Supply and DemandChina Cotton Supply and DemandMillion BalesMillion Bales

1998/99 1999/00 2000/01 Beginning Stks.ProductionImports

19.9620.700.36

21.1317.600.12

14.9517.500.70

Total Supply 41.02 38.85 33.15

Domestic UseExports

19.200.68

22.201.70

22.200.70

Total UseEnding Stks.

19.8821.13

23.9014.95

22.9010.25

Source: USDA/WASDE Supply/Demand, 9/12/00

Next

Previous

Cotton: U.S. and Foreign Stocks/Use, Nearby Cotton: U.S. and Foreign Stocks/Use, Nearby Futures, and “A” Index, Aug. 1989/90 - Aug. 1993/94, Futures, and “A” Index, Aug. 1989/90 - Aug. 1993/94,

and and AugAug. 99/00 - Sept. 00/01. 99/00 - Sept. 00/01

0

20

40

60

80

100

A89/90 A90/91 A91/92 A92/93 A93/94 A99/00 A00/01

Monthly: Beginning August 1 Crop Year

Cen

ts/L

b. a

nd R

atio

A Index Nearby Futures U.S. S/U For. S/U

99/00 For. S/U 99/00 U.S. S/U 00/01 For. S/U 00/01 U.S. S/U

Next

Previous

U.S. Cotton Production, Use, %U.S. Cotton Production, Use, %Stocks/Use and North Delta Price,Stocks/Use and North Delta Price,

1980/81-2001/20021980/81-2001/2002

0

5

10

15

20

25

Mill

ion

Bal

es

020406080100120

Cen

ts/L

b.

Stks/Use Prod. Use North Delta

Next

Previous

U.S. Cotton Domestic Use, U.S. Cotton Domestic Use, Exports, and “A” IndexExports, and “A” Index

0

2

4

6

8

10

12

1985 88 91 94 97 2000

Mill

ion

480

Lb. B

ales

0

20

40

60

80

100

Cen

ts/L

b.

Exports Domestic Use A Index

Next

Previous

U.S. Mill Consumption, Net Domestic U.S. Mill Consumption, Net Domestic Consumption and U.S. Share, 1972-1999Consumption and U.S. Share, 1972-1999

05

1015

2025

1972 78 84 90 96 99

Calendar Year

Mill

ion

480

Lb. B

ales

020

4060

80100

Perc

ent

U.S. Mill Cons. Net Domestic Cons. U.S. Share

Next

Previous

Cotton Futures: December 1992 and Cotton Futures: December 1992 and 2000 Settlement Prices2000 Settlement Prices

DJ F M A M J J A S O N D J A M A M J J A S O N D45

50

55

60

65

70

75

80

Cen

ts/lb

.

December 92

December 00

Next

Previous

Cotton Futures: December 1993 and Cotton Futures: December 1993 and 2000 Settlement Prices2000 Settlement Prices

DJ F M A M J J A S O N D J AM A M J J A S O ND50

55

60

65

70

Cen

ts/lb

.

December '93

December '00

Next

Previous

World Cotton Prices: “A” Index, Nearby World Cotton Prices: “A” Index, Nearby Futures, AWP and U.S. Loan RateFutures, AWP and U.S. Loan Rate

September 1996 - September 20, 20009/1 1/9

7 5/1 8/1 1/98 5/1 8/3 1/9

9 5/3 8/21/3

/00 5/1 8/1

9/20/0

025

45

65

85

105

Cen

ts/L

b.

Loan Rate (51.92)

"A" IndexNearby Futures

AWP

Next

Previous

Weekly “A” Index Versus Nearby Weekly “A” Index Versus Nearby Futures Settlement PriceFutures Settlement Price

45

50

55

60

65

70

Cen

ts/L

b.

"A" Index Nearby Futures

Next

Previous

December 2000 Cotton Futures Settlement December 2000 Cotton Futures Settlement Price, U.S. Ending Stocks/Use, and Foreign Price, U.S. Ending Stocks/Use, and Foreign

Ending Stocks/UseEnding Stocks/Use

Based on 441 contract days12/16

/981/4

/99 2/1 3/1 4/1 5/3 6/1 7/1 8/2 9/110/111

/112

/1 1/2 2/1 3/1 4/3 5/1 6/1 7/5 8/1

9/20/0

052

57

62

67

72

Cen

ts/L

b.

0

10

20

30

40

50

60

Percentage

U.S. Stks/Use

Settlement Price

For. Stks/Use. For. Stks/UseProj. 00/01

U.S. Stks/Use Proj. 00/01

Next

Previous

Net Bale Commitments of SpeculativeNet Bale Commitments of SpeculativeTraders in Cotton FuturesTraders in Cotton Futures

Average Nearby Futures Price, January 1, 1994 - September 15, 2000Average Nearby Futures Price, January 1, 1994 - September 15, 2000

Week

0123

-1-2-3-4

Mill

ions

40

60

80

100

120

Cents/Lb.

Nearby Futures Price Long less Short

Next

Previous

World: Historical Supply/Demand PriceWorld: Historical Supply/Demand Price

Stocks/Use Million Bales

“A” Index Cents/Lb.

August ’93December ’93March ’94August ‘94

41.139.236.632.8

55.559.882.176.7

August ’00September ‘00

38.037.1

60.962.0

August ’01 Proj. ?Source: USDA/WASDEProjection by Carl Anderson

36.5 71.0

Next

Previous

Futures PricesFutures PricesSeptember20, 2000September20, 2000

Year 20002001

December 63.1563.95

Year 20002001

July 66.0565.88

Implications1. Stable market2. U.S. export dependent3. U.S. with larger carryover

Next

Previous

Pricing StrategiesPricing Strategies Puts for price insurancePuts for price insurance

Buy puts, sell out-of-the-money callsBuy puts, sell out-of-the-money calls

Forward contracts - problems with deep Forward contracts - problems with deep discounts, financial securitydiscounts, financial security

Join marketing association or gin poolJoin marketing association or gin pool

Next

Previous

Keys to Profitable Cotton IndustryKeys to Profitable Cotton Industry

Industry teamworkTechnological advancesProduction costs under 65 cents/lb.Risk versus alternative crops Increase yields/acreReduce cost/poundProducer performance accountingExpand world demand

Next

Previous

SummarySummary

2000/01: Less world supply More use Higher price

2001/02: World production near use U.S. production more than use U.S. supply up Price implications: “A” Index = 65-75 cents ? December ‘01 futures = 62-72 cents ?