Locked in tooth-and-nail battle with synthetics for marketshare As if low prices, high production costs, and a flood of textile imports weren't problems enough for the U.S. cotton industry the past three years, it also has had a tooth-and-nail battle with synthetics.
"Man-made fiber is challenging cotton in every market," Kent Lanclos, assistant director of economic services for the National Cotton Council, said at the organization's annual meeting at San Diego, Calif.
"World retail consumption of cotton last year (2000) is estimated at 90 million bales, while polyester use is estimated at 86 million bales. All man-made fiber use has soared to the equivalent of 145 million bales."
While cotton use is rebounding from its 1998 decline, Lanclos said, polyester saw a steady increase during that period of market turmoil and analysts are now projecting that 2001 will see polyester use outstrip that of cotton.
Still, cotton is making gains on the world scene.
Starting with an 8 percent increase in world consumption in 1999 over 1998, the USDA is now projecting that 2000 use will be up another 300,000 bales to 92.2 million.
"The quick rebound in world cotton mill use is a testimony to the rapid recovery of the Asian economies following the 1998 financial crisis," Lanclos says.
In the world today, three countries - China, India, and Pakistan - accounted for nearly 44 million bales of mill use in 2000 - about 48 percent of the world total. More impressively, they represent over 75 percent of the increase in world mill use since 1998.
"If foreign governments continue to invest in their textile industries, and the price of cotton remains competitive with man-made fibers, cotton mill use should increase slightly to 93 million bales in 2001," Lanclos says.
The USDA is now estimating that raw cotton exports last year will hit 26.7 million bales, about 29 percent of world mill use.
This rebound in U.S. exports, Lanclos says, can be traced back to the government's restored funding in October 1999 for the Step 2 payments program.
"The availability of Step 2 certificates has permitted U.S. merchants to quote competitively priced cotton, while domestic prices remain above world prices. The USDA is now estimating U.S. exports of raw cotton in 2000 will total 7.3 million bales.
But, Lanclos notes, "Even though conditions have improved from last year, the world cotton market remains intensely competitive."
The lineup of key world cotton buying nations is changing, he says. "Ten years ago, the top three export destinations for U.S. raw cotton were Japan, China, and South Korea. In 1999, they were Mexico, Turkey, and Indonesia, and year-to-date figures show that to be the case for 2000. Further, China is no longer even in the top 10."
Even so, China remains a major influence on the direction of the world cotton market, Lanclos says.
"For the past two years, China has been a net exporter of cotton, trying to reduce burdensome stocks levels. At the same time, their consumption seems to be rising at an extraordinarily steep rate."
With the USDA forecasting China's mill use at 23 million bales for 2000, and production at 20 million bales, many analysts are forecasting that China is at a zero net trade position.
"For 2001, China is expected to once again become a net importer of cotton," Lanclos says. "And with the exception of the dissolution of the former Soviet Union and Central Asian bartering, changes in China's net trade position have been a greater impact on average cotton prices over the past two decades than any other factor."
While China's cotton stocks numbers (it held over 47 percent of the world's total cotton stocks in 1998) are a major concern to the industry, indications are their government is making progress toward resolving their production/use imbalance, he says.
"Chinese authorities finally have begun reform of their cotton policies, which seem to be working, since stocks have been reduced by over 9 million bales in just two years."
Reducing China's production has proven "a more intractable problem," Lanclos says. "Cotton continues to be the most profitable crop for Chinese farmers, who currently are getting about 68 cents per pound, up from 54 cents last year. These higher returns will encourage them to maintain cotton acreage, resulting in at least the same size crop for 2001."
Based on National Cotton Council forecasts of production mill use, Lanclos says, the foreign cotton production deficit for 2001 is projected at 11.7 million bales.
"This deficit will have to be covered by some combination of U.S. exports and further drawdown of world stocks. With Step 2 in place, U.S. raw cotton exports should increase to the range of 8 million to 8.5 million bales, for a market share of more than 28 percent."
More than 1,000 representatives from the cotton industry's seven segments participated in the annual meeting.
Delegates from 17 cotton-producing states developed and adopted resolutions for council action in farm and economic policy, international trade, public relations and international market development, research, education, packaging, distribution, and health/safety/environment.