The deficit between foreign cotton consumption and production is expected to shrink to 10.1 million bales in 2004, down from 20.3 million bales in 2002. Despite the smaller market, U.S. cotton producers should export 10 million to 11 million bales of cotton in 2004-05, according to Gary Adams, vice president for economics and policy analysis, National Cotton Council.

Adams, speaking at the Engineered Fiber Selection Conference in Greenville, S.C., said a big reason for the production-consumption deficits has been shortfalls in the last two Chinese crops, which averaged 22 million bales. With domestic consumption of right around 30 million bales, “they have come to the world market with some significant imports.”

This demand helped push cotton prices to as high as 80 cents in October 2003. “Since then the market has given back some of those gains,” Adams said. “The weakness that we're seeing in prices today reflects some of the anticipation for (higher) production in 2004.”

China is expected to increase cotton acreage 10 percent in 2004, said Adams, “assuming that their weather will continue to cooperate. With average yields, we could see a Chinese crop somewhere in the neighborhood of 27 million to 28 million bales.”

Other countries likely to increase production for 2004 include Pakistan, Australia and Brazil. Acreage declines are expected in the United States and India. “We do expect an increase in acreage in India, but it's coming off a record yield, and we assume a return to more average yields.”

The United States also had record yields in 2003, but the latest acreage estimates indicate that U.S. cotton acreage will slip below 14 million acres, due to higher grain and oilseed prices. In addition, U.S. stocks will be at the lowest levels since 1998.

The U.S. cotton crop “has gotten off to a reasonably good start,” Adams said. “There have been some pockets of concern, but there is still a lot to be determined as we go through the growing season. Average yields would produce a crop of around 17 million bales, about 1.1 million bales less in 2004,” Adams said.

If average world yields are applied to the expectation of higher acreage, “we come up with a world crop in excess of 100 million bales, a record,” Adams said.

Meanwhile, world mill use of cotton is forecast at between 99 million and 100 million bales for 2004. The growth in polyester consumption could reach 108 million bales.

China is expected to continue to expand its mill capacity at the expense of other countries. China's percent of total mill use in the world has risen from 22 percent in 1997 to 32 percent in 2003, while U.S. percent of total mill use declined from 20 percent to 10 percent during the time period.

China is set to claim some additional demand growth when quotas on textile imports into the United States are eliminated in January 2005. Pakistan, Turkey, Brazil and India could claim some marketshare as well. Mill use will continue to contract in Japan, the European Union and the United States, where mill use could drop to 5.8 million bales for 2004-05.

U.S. raw cotton exports will depend in large part on the size of deficits of foreign cotton use relative to production, according to Adams. The last two years, the deficits have been significant, at 16 million and 20 million bales, respectively, which led to substantial trade.

“Expected recovery in world production will narrow the gap between foreign production and consumption in 2004, to around 10 million bales,” Adams said. “That's a much more difficult environment for exporting U.S. cotton. That creates some additional challenges for us in terms of exports.”

Still, Adams expects the United States will export 10 million to 11 million bales in 2004-05, down from just under 14 million bales in 2003-04. World cotton ending stocks have continued to decline since 2001 and stand at 33 million bales for 2003-04. Stocks will rise slightly in 2004-05, according to Adams.

At the time, the market doesn't appear concerned about the world's ability to meet demand, noted Adams. “But given the level of consumption, we need to see a record crop. So it's still a delicate balance. If we see some weather concerns develop and we're looking at a 98 million- to 99 million-bale crop, we'll have to ration demand or draw down stocks.”