As the U.S. cotton market has shifted from primarily domestic use to a majority export scenario, the industry continues to face challenges of adaptation, says Gary Adams.

“A few years ago, 30 percent of our crop was exported and 70 percent was used domestically,” he told members of the Southern Crop Production Association at their annual conference at Amelia Island, Fla.

“Now, we're exporting 70 percent to 75 percent of our crop. We came off 2005 with 18 million bales exported, 9 million of that to China. Although things have slowed over the past several weeks, we expect that for 2006, exports will continue to be large.

But, said Adams, who is vice president of economic and policy analysis for the National Cotton Council at Memphis, “China hasn't been in the market the way they've been the last couple of years, and it's probably going to be a struggle to meet USDA's estimate of 16 million bales for the current marketing year.

“Going forward, I think we'll need to see 15 million to 16 million bales exported, year-in and year-out, and our ability to do that will depend a lot on what happens outside the U.S. in terms of mill use and production.”

Over the last seven to eight years, Adams said, world mill use has outpaced product, which left a gap that was filled by U.S. exports.

“One of our challenges is to try and sustain an increase in mill use and demand that will outpace production outside the U.S. and allow us to fill the gap with our cotton.”

China's market is a hard one to figure, Adams said. “There's still a lot of uncertainty about the actual size of their crop and we still have to deal with their quota system and different tariff levels. There are a lot of challenges in doing business with them, but it's a market we have to pay attention to, because it will drive where the U.S. industry goes and our ability to continue to export high levels of cotton.”

The world's largest cotton producer, with roughly 30 million bales, China is also the larger spinner in the world, and is expected to use 50 million bales this year. It is also the largest importer of cotton, last year taking 19 million bales from the world market.

India is another country that bears watching, Adams noted. “They devote more area to cotton production than any other country, and while they've had very low yields traditionally, they've made dramatic improvements over the last couple of years.”

Over the last couple of years, they've emerged as an exporter of cotton and a competitor for the U.S. in markets such as China. “India has the ability to increase its production significantly, and we could see them as a significant competitor in world markets.”

With the exception of 2004, world cotton consumption in recent years has generally seen use exceed production, which has brought down stocks levels.

The tightening of the stocks-to-use ratio has led many analysts to favor a more bullish price scenario, Adams said, “but that hasn't materialized.”

Cotton prices, at mid-November, were similar to year-ago levels, upper 50-cent to 60-cent range for the December contract.

“But corn is up sharply, in the $3.50 to $3.60 range for September, and the expectation is that cotton acreage in 2007 will see a lot of competition from corn and oilseeds.”

With a basis advantage, southern growers likely will have opportunities to contract corn at substantially higher levels than in 2006, Adams said.

“With this competition for acres, we could see cotton drop back to the 15.3 million-acre range in 2007.”

It's “not inconceivable,” he said, “when producers pencil out the returns from cotton versus returns from corn, that cotton could fall to the 13.5 million-acre range we saw a couple of years ago.”

Even that acreage level, given favorable weather and “normal” yields, could result in a 20 million to 20.5 million bale crop.”

If consumption continues to grow on a global basis, and barring exceptional yields, Adams said, “we'd expect to see production falling short of consumption and world stocks continuing to tighten.”

A challenge for the U.S. cotton industry, he said, is to adapt to the demands of the export market.

“It used to be that 70 percent of our crop moved in a somewhat orderly fashion to the textile mills in the Southeast U.S.

“But with the decline of that market over the last 11 years or so and the emergence of the export market, we're now moving cotton to Los Angeles, Corpus Christi, Galveston, and other ports, which creates new demands in terms of timelines, quality, etc., and results in a much more competitive and volatile situation.

“Some months we may have total offtake of more than 3 million bales; other months, 1 million bales or less. Our challenge is to keep this cotton moving smoothly and to maintain a competitive edge while shipping 15 million to 16 million bales into the export market year-in and year-out.”

And this must be coupled with efforts to increase consumption outside the U.S., Adams said.

“U.S. per capita consumption of cotton apparel and textiles is 36 to 37 pounds per year; in the rest of the world, it's only 7 pounds, and that has been pretty static since 1991.

“Outside the U.S., cotton continues to lose market share to man-made fibers, and our challenge is to increase research and promotion programs aimed at boosting cotton consumption in the rest of the world.”