Cotton

Cotton is a natural fiber that finds use in many products. These range from clothing to home furnishings to medical products. As a result, cotton is always in demand though its use in any given season will be directly affected by the strengths and weaknesses of the economy. When the U.S. economy is contracting or in recession, use of cotton by textile mills slows substantially. When the economy is growing, cotton use increases. A decline in interest rates which reduces the interest rate on mortgage loans will act to support the housing sector. That, in turn, will cause more cotton to be used in items like towels and sheets. That was the case in 2002 as interest rates reached multiyear lows leading to strength in the housing sector. At the same time, economic growth was sluggish at best and unemployment rates increased. That lead to declines in consumer sentiment, which can adversely affect how much consumers spend on items like clothing. Another factor affecting cotton is the strength of the U.S. dollar. In 2002 the dollar was generally weaker and that acted to support cotton exports. In late 2001 cotton prices had reached multiyear lows trading under 30 cents per pound. From that very low level, prices rebounded in 2002 to move back toward the 50 cent level. Prices have backed away from that level somewhat but still remain much above the levels seen in late 2001.

In November 2002, the U.S. Department of Agriculture estimated the U.S. cotton crop at 17.82 million bales, a decline from the 18.07 million bales that were forecast in the October crop report. A year ago, the U.S. cotton crop was 20.30 million bales. In part, the decline in cotton production between October and November was due to damage to the crop that was brought on by Hurricane Lili late in the season. That hurricane came out of the Gulf of Mexico right on the Louisiana coastline. The combination of heavy rains and high wind caused damage to crops in the Delta. There were also rains in October that adversely affected the quality of the harvested cotton. At maturity when cotton bolls open, they are most vulnerable to damage from wind and rain. Winds can knock the bolls over while rains can affect the color of the cotton fiber.

For the 2002/03 season, the largest cotton producing state was Texas. Harvested acreage was estimated at 4.62 million acres, up 8 percent from the previous season. The yield was 534 pounds per acre, up 11 percent from last season and production was 5.14 million bales, up 20 percent. Mississippi cotton production was estimated at 2 million bales, down 17 percent from the previous year. Harvested acreage was down 27 percent with yields of 821 pounds per acre, up 14 percent from a year ago. Georgia production fell 19 percent to 1.8 million bales. Harvested acreage was down 3 percent but yields were off 16 percent. California cotton production was 2 million bales, down 17 percent from the previous season. Harvested acreage fell 21 percent though yields were up 5 percent. Arkansas cotton production fell 11 percent to 1.63 million pounds. Harvested acreage of 930,000 acres was down 13 percent while yields were up 2 percent. Adverse weather affected a number of other states as well. South Carolina cotton production fell 57 percent to 180,000 bales. Harvested acreage was down only 3 percent while yields fell 56 percent. North Carolina cotton production declined 43 percent to 950,000 bales. Harvested acreage fell 2 percent while yields fell 42 percent.

The U.S.D.A. estimated U.S. planted cotton acreage at 14.38 million acres, down 9 percent from the previous season. Harvested acreage of 12.86 million acres was down 7 percent. The average yield was 665 pounds per acre, down 6 percent from a year ago. Season beginning stocks were 7.43 million bales, up 24 percent from a year ago. With a crop of 17.82 million bales, the total supply of cotton was 25.27 million bales, down 4 percent from last season. In terms of use, domestic use of cotton by mills was forecast to be 7.7 million bales, almost unchanged from 7.72 million bales a year ago. Exports of cotton were forecast to be 10.8 million bales, down 2 percent from the 11 million bales shipped in 2001/02. Projected ending stocks of cotton were 6.8 million bales, down 9 percent from the previous season.

World production of cotton in 2002/03 was forecast to be 88.5 million bales, a decline of 10 percent from the previous year. China is the largest cotton producer with 2002/03 output estimated at 21.5 million bales, down 12 percent from the 2001/02 season. India's production of 10.9 million bales was some 11 percent less than in the previous season. Pakistan's cotton crop in 2002/03 was 7.8 million bales, down 6 percent from the previous season. Cotton production by Central Asian countries like Uzbekistan was estimated to be 6.8 million bales, a decline of 8 percent from last season. Other large producers are Turkey, Australia, and Brazil.

Futures Markets

Cotton futures and options are traded on the New York Cotton Exchange, a division of the New York Board of Trade. Cotton futures are 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).

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

Cotton

Related Links

Government Reports

World Production Maps