High global supply, low prices and other factors are at play
At the 78th National Cotton Council (NCC) annual meeting, economists told delegates ample global stocks, low cotton prices and other uncertainties around global mill use will create another challenging marketing year for cotton in 2016.
“While world mill use is expected to exceed world production in 2016, global cotton stocks remain high,” says Jody Campiche, NCC vice president of economics and policy analysis.
China Looks to Increase Cotton Imports
One reason is that China’s mill use is projected to decline again this year, Campiche says, in part because internal cotton prices are almost double the cost of polyester prices. The U.S. cotton industry highly depends on export markets such as China, but U.S. exports to China are expected to drop again for the fourth straight year, she says. Domestic use, meantime, has risen for four consecutive years, but represents just a little more than a quarter of total use.
U.S. offtake should total 13.8 million bales in 2016, which will lead to ending stocks of 193,000 bales, Campiche says. World cotton stocks could decline by 6.3 million bales in 2016 but will not see a major reduction in global inventories, which started 2016 at 103 million bales.
On the production side, Campiche says a NCC survey of cotton farmers in December 2015 suggests Upland cotton intentions of 8.9 million acres, up 5.7% from 2015. Extra-long staple (ELS) cotton, meanwhile, could jump sharply—up 31.2% to 208,000 total acres. But could those numbers edge higher as the 2016 season nears?
“History has shown U.S. farmers respond to relative prices when making planting decisions,” Campiche says. “During the survey period, the cotton December futures contract averaged just under 65¢ per pound, which is very similar to a year ago. However, corn and soybean prices are 8% to 12% below year-ago levels, so price ratios to competing crops are a bit more favorable than in 2015.”
Actual plantings will be further influenced by ever-changing weather and market conditions at the time of planting, Campiche adds.