Cotton Economic Outlook

BONITA SPRINGS, Fla. (DTN) -- The coronavirus in China represents "a significant wildcard" in the world cotton market, the National Cotton Council said in its 2020 economic outlook released at the group's annual meeting in New Orleans over the weekend.

While the first phase of the trade agreement between the U.S. and China provided some cautious optimism for an improvement in the cotton economic situation, the coronavirus outbreak in the early weeks of 2020 could delay China's ability to increase purchases in the near term, Jody Campiche, the council's chief economist said.

"As a result, the potential impacts of the coronavirus represent a significant wildcard in the outlook for the world cotton market in the 2020 crop year," Campiche said.

In her analysis of the NCC Annual Planting Intentions survey results, Campiche said the NCC projects 2020 U.S. cotton acreage to be 13.0 million acres, 5.5% less than 2019. The expected drop in acreage is the result of slightly weaker cotton prices relative to corn and soybeans.

Upland cotton intentions are 12.8 million acres, down 5.6% from 2019, while extra-long staple (ELS) intentions of 224,000 acres represent a 2.7% decline.

"The cotton-to-corn and cotton-to-soybean price ratios are lower than in 2019 due to lower cotton prices and higher corn and soybean prices," Campiche said. "A price ratio decrease generally indicates a decline in cotton acreage. For the 2020 crop year, corn, soybeans, and wheat are expected to provide modestly more competition for cotton acres."

USDA will offer more analysis on the 2020 forecast for cotton as well as other crops and livestock at the USDA Outlook Forum later this week.

The NCC questionnaire, mailed in mid-December 2019 to producers across the 17-state Cotton Belt, asked producers for the number of acres devoted to cotton and other crops in 2019 and the acres planned for the coming season. Survey responses were collected through mid-January.

Regarding domestic mill cotton use, the NCC is projecting a slight decline in U.S. mill use to 2.85 million bales in the 2020 crop year. The recently passed United States-Mexico-Canada Agreement (USMCA) includes some important provisions that should help boost the U.S. textile industry, Campiche said.

Campiche noted that export markets continue to be U.S. raw fiber's primary outlet. World trade is estimated to be higher in the 2019 marketing year, but the retaliatory tariffs and increased competition from other major exporting countries has led to a sharp decline in the U.S. trade share in China.

"Despite the continued U.S.-China trade disruptions, U.S. export sales to other markets have been very strong for the current crop year," Campiche said.

Sales reached the highest level in the marketing year during the week ended on Feb. 6. While export competition from Brazil remains strong, the U.S. has had increased opportunities for export sales to other markets in the 2019 crop year. Lower production in Australia, Pakistan and Turkey has led to higher U.S. export sales. As a result, the United States will remain the largest exporter of cotton in 2019 with 16.5 million bales.

"Prior to the implementation of tariffs, the United States was in a prime position to capitalize on the increase in Chinese cotton imports," Campiche said.

"With the imposition of the 25% tariff, China has turned to other suppliers during the 2018 and 2019 marketing years, allowing Brazil, Australia and other countries to gain market share. Vietnam is currently the top export market for U.S. cotton in the 2019 crop year, followed by China and Pakistan."

"U.S. exports are projected to drop slightly to 16.4 million bales in the 2020 marketing year. For this outlook, the United States is assumed to export 2.5 million bales to China in the 2020 crop year as compared to an estimated 2.0 million bales in the 2019 crop year. However, with record stocks outside of China, increased production in Brazil, and a partial recovery in Australia's production, the U.S. will continue to face strong export competition in 2020. When combined with U.S. mill use, total offtake falls short of expected production, and ending stocks are projected at 5.9 million bales."

Campiche said world production is estimated to decline by 2.4 million bales in 2020 to 118.9 million as a result of lower cotton acreage. World mill use is projected to increase to 121.7 million bales in 2020. Ending stocks are projected to decline by 2 million bales in the 2020 marketing year to 80.1 million bales, resulting in a stocks-to-use ratio of 66.4%. Stocks outside of China are projected to increase to a record level in 2020.

"Based on the underlying assumptions and resulting cotton balance sheet, stable stocks outside of China, increased export competition from Brazil, recovery in Australia's production, and low manmade fiber prices will have a bearish influence on cotton prices," Campiche said.

"A quick containment of the coronavirus and a successful implementation of the phase-one trade agreement would provide support to prices."

National Cotton Council http://www.cotton.org/…

Jerry Hagstrom can be reached at jhagstrom@njdc.com

Follow him on Twitter @hagstromreport

(CC/AG)

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