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Cotton

Cotton is a natural vegetable fiber that comes from small trees and shrubs of a genus belonging to the mallow family, one of which is the common American Upland cotton plant. Cotton has been used in India for at least the last 5,000 years and probably much longer, and was also used by the ancient Chinese, Egyptians, and North and South Americans. Cotton was one of the earliest crops grown by European settlers in the U.S.

Cotton requires a long growing season, plenty of sunshine and water during the growing season, and then dry weather for harvesting. In the United States, the Cotton Belt stretches from northern Florida to North Carolina and westward to California. In the U.S., planting time varies from the beginning of February in Southern Texas to the beginning of June in the northern sections of the Cotton Belt. The flower bud of the plant blossoms and develops into an oval boll that splits open at maturity. At maturity, cotton is most vulnerable to damage from wind and rain. Approximately 95% of the cotton in the U.S. is now harvested mechanically with spindle-type pickers or strippers and then sent off to cotton gins for processing. There it is dried, cleaned, separated, and packed into bales.

Cotton is used in a wide range of products from clothing to home furnishings to medical products. The value of cotton is determined according to the staple, grade, and character of each bale. Staple refers to short, medium, long, or extra-long fiber length, with medium staple accounting for about 70% of all U.S. cotton. Grade refers to the color, brightness, and amount of foreign matter and is established by the U.S. Department of Agriculture. Character refers to the fiber’s diameter, strength, body, maturity (ratio of mature to immature fibers), uniformity, and smoothness. Cotton is the fifth leading cash crop in the U.S. and is one of the nation’s principal agricultural exports. The weight of cotton is typically measured in terms of a “bale,” which is deemed to equal 480 pounds.

Cotton futures and options are traded on the ICE Futures U.S. (ICE) exchange. Cotton futures are also traded on the Bolsa de Mercadorias & Futuros (BM&F). Cotton yarn futures are traded on the Central Japan Commodity Exchange (CCOM) and the Osaka Mercantile Exchange (OME). The ICE’s futures contract calls for the delivery of 50,000 pounds net weight (approximately 100 bales) of No. 2 cotton with a quality rating of Strict Low Middling and a staple length of 1-and-2/32 inch. Delivery points include Texas (Galveston and Houston), New Orleans, Memphis, and Greenville/Spartanburg in South Carolina.

Prices – Cotton prices in 2010 continued the rally from the 8-1/2 year low of 36.7 cents per pound posted in November 2008, with cotton prices supported by insatiable Chinese demand and limited global cotton supplies. Cotton prices through the first half of 2010 traded sideways at 2-1/2 year highs and then exploded higher the rest of the year as they posted a record high of 159.12 cents per pound in December 2010 and closed the year up 92% at 144.81 cents per pound. Cotton prices extended their parabolic rally into March 2011 and surged to an all-time high of 227.00 cents a pound, the highest price since cotton began recorded-trading 140 years ago. Chinese cotton demand continued to expand with 2010 China cotton imports surging +86% y/y to 2.84 MMT. Adverse weather reduced global cotton supplies in 2010 with China’s cotton crop hurt by the worst flooding in a decade while cotton production in Australia, the world’s fourth-largest exporter, was decimated after the worst floods there in 50 years. U.S. cotton production in 2009/10 dropped -4.9% y/y to 12.188 million bales and global cotton production in 2009/10 fell -5.2% y/y to 101.54 million bales. The USDA in February 2011 cut its 2010/11 global cotton carry-over estimate to 42.81 million bales, a 15-year low.

Supply – World cotton production in 2010-11 rose +13.5% yr/yr to 115.250 million bales (480 pounds per bale), close the record high of 121.812 million bales seen in 2006-07. The world’s largest cotton producers were China with 26.0% of world production in 2010-11, India with 22.6%, the U.S. with 15.9%, and Pakistan with 7.6%. World beginning stocks in 2010-11 fell 27.3% yr/yr to a fourteen year low of 43.994 million bales.

The U.S. cotton crop in 2010-11 rose by +50.3% yr/yr to 18.314 million bales, down from the 2005-06 record high of 23.890 million bales. U.S. farmers harvested 10.706 million acres of cotton in 2010-11, up +42.2% yr/yr. The U.S. cotton yield in 2010-11 rose +5.7% to 821 pounds per acre, not far behind the 2007-08 record high of 879 pounds per acre. The leading U.S. producing states of Upland cotton are Texas with 47.6% of U.S. production in 2010, Georgia (12.7%), Arkansas (7.1%), North Carolina (5.7%), Missouri (4.1%), Mississippi (5.0%), and California (2.2%). U.S. production of cotton cloth has fallen sharply by almost half in the past decade due to the movement of the textile industry out of the U.S. to low-wage foreign countries. Specifically, U.S. production of cotton cloth in 2010 fell –0.3% yr/yr to a record low of 1.316 billion square yards, less than one-fourth of the production level seen in 1950.

Demand – World consumption of cotton in 2010-11 fell by +1.8% yr/yr to 116.415 million bales, but still below the 2006-07 record high of 121.986. Consumption of cotton continues to move toward countries with low wages, where the raw cotton is utilized to produce textiles and other cotton products. The largest consumers of cotton in 2010-11 were China (40.4% of world total), India (18.5%), and Pakistan (8.8%). U.S. consumption of cotton by mills in 2008-09 (latest data) fell –4.5% yr/yr to 4.400 million bales, and accounted for 25% of U.S. production. The remaining 75% of U.S. cotton production went for exports.

Trade – World exports of cotton in 2010-11 rose by +7.2% yr/yr to 38.120 million bales, but still below the 2005-06 record high of 44.854 million bales. The U.S. is the world’s largest cotton exporter by far and accounts for 41.3% of world cotton exports. Key world cotton importers include Turkey with 8.1% of total world imports in 2010-11, Indonesia with 5.1%, Mexico with 3.4%, and Russia with 1.4%. U.S. cotton exports in 2010-11 (latest data) fell by -5.0% yr/yr to 12.523 million bales. The main destinations for U.S. exports in 2010-11 were China (31.0%), Mexico (11.9%), Indonesia (5.3%), Taiwan (4.8%), and Thailand (3.4%).


Excerpted from the CRB Commodity Yearbook. For more information on CRB products click here

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