It was music to the ears of most cotton producers in the room, although the CEO of Allenberg Cotton Co., in Memphis, warned that 10 things could change between now and harvest.

Not the least of which is U.S. farmers planting cotton fencerow to fencerow or a bumper crop in China. But as of now, things are definitely looking up for cotton, he says.

Speaking on market conditions at the Market Outlook Conference in Memphis, Nicosia said there is simply not enough acreage and production forecast in the world to satisfy demand for the natural fiber.

As a result, there is a projected deficit between foreign production and consumption (excluding the United States) amounting to over 14 million bales, which bodes well for U.S. exports. Where s that cotton going to come from? “A lot of it is going to come from this room,” he said.

In addition, prices in other commodities have also risen, so its not easy for cotton to turn around and grab all the acreage it wants.

According to Nicosia, the foreign production deficit widened significantly in 2002, when, in response to extremely low prices in 2001, world area dropped from just under 84 million acres to just under 78 million acres. “That drop was one of the largest drops we ve ever seen,” he said. “In response to that, world production went from 98 million bales to 88 million bales.

”Because of that, we ve had a tremendous drawdown of stocks around the world. Prices have recovered and we’re estimating 81.3 million acres for next year which will lead us to a world crop of 93.6 million bales.”

Adding 39.1 million bales of beginning stocks and subtracting 97.5 million bales in consumption results in net world ending stocks for 2003-04 of 35.1 million bales.

The world situation is extremely bullish, even troublesome, Nicosia said. Cotton prices and the net return to the grower are extremely favorable. “With the chances of something else going wrong in the world and prices shooting even higher, if I were a grower, I d be planting cotton,” he noted.

Nicosia pointed out that in 2000, “We had roughly the exact same acreage predicted for the year ahead. But we were only able to get 88.7 million bales of production that year. I can guarantee that the world will use a lot more than 88 million bales next year. If we have another crop like we did in 2000, were going to be talking about $1.50 cotton.”

Allenberg projects 2003 U.S. cotton acreage at 14.495 million, compared to the National Cotton Council’s estimate of 14.048 million acres. “We believe the acreage will respond a little more favorably all around the United States,” Nicosia said.

Allenberg projects 2003 U.S. cotton production will total 17.6 million bales and domestic consumption will continue to slide down to 7.55 million bales. Adding exports of 11 million bales produces ending stocks of 5.6 million bales.

”If you plug in the NCC’s production number and our usage number, carryout drops to 5.071 million bales, which is a very attractive number from a price standpoint,” he added.

Nicosia projected that December futures prices are going to rise toward a range of 63 cents to 68 cents.

World cotton use has been expanding steadily over the last five years, but the potential to expand markets for U.S. cotton producers is a lot like robbing Peter to pay Paul.

The United States has lost roughly four million bales of consumption over the last five to seven years, Nicosia said. “That’s important to you because the textile industry here is the best customer there is for U.S. cotton. They’re the best payer. It’s a captive market. So your best customer is in a shrinking marketplace getting squeezed out by competitors around the world.

Applying much of the pressure is China, which has increased U.S. textile apparel imports by 125 percent over the last few years, according to Nicosia. “It comes into our country and crowds us out one for one for U.S. consumption. That’s why textile companies are going bankrupt.”

On the other hand, what U.S. raw cotton producers are losing in the domestic market, they are gaining in the export market. Again, China looms as the biggest market, where fashion-conscious citizens are forsaking the drab uniforms of their past with the latest in Western wear.

China’s consumption has absolutely exploded, Nicosia said. If anything, people are underestimating the consumption in China. Some of our estimates are too scary to even say. The numbers look foolish because they’re right off the charts.

Even conservative estimates indicate that China’s cotton producers can’t meet demand. Over the last five years, China has had a 2-million to 5-million bale deficit every single year, Nicosia said. That equates to somewhere between 13 million and 18 million bale drawdown in Chinese stocks over the last four years, not counting what has been brought in under imports.

At one time, it was estimated that China had close to 20 million bales in government-held stocks, which weighed heavily on prices in the late 1990s. As Chinese consumption continues to accelerate, it puts more pressure on this particular deficit, Nicosia said. This deficit is what is driving world prices.

Next year, the deficit will again be under extreme pressure, noted Nicosia. “China will increase production substantially, but because of the rate of acceleration of consumption and because they are so behind the curve, there’s no way they re going to catch up in the short term. They will remain a massive importer in the near future.”

Cotton prices are closely tied to China s import status, Nicosia noted. “China acts as a residual buyer. They take up all the excess supply around the world. When they remove those from the marketplace, that removes all the aggressive sellers out there trying to market their cotton. When you remove the aggressive sellers, all of a sudden, the market tries to go to equilibrium.

”In 2003, we believe China is going to buy somewhere near 2.5 million bales and prices will recover,” Nicosia said.

The Ag Market Network and Bayer CropScience sponsored the outlook conference.

e-mail: erobinson@primediabusiness.com