The scales of U.S. cotton supply and demand is tipping in the wrong direction, according to Memphis cotton merchant William Dunavant.
Dunavant told attendees of the recent Market Outlook Conference in Tunica, Miss., that his analysts are now predicting that U.S. growers will plant 16.1 million to 16.2 million acres of cotton this coming year. That's up from his early January projection of 15.9 million acres.
“With a 633-pound average yield, that should generate a crop of about 19.3 million bales. That is too much cotton.”
Dunavant estimates that domestic consumption will decline to between 9.8 million and 9.9 million bales in 2001-02, while exports will reach “a robust 8.3 million bales or more.”
“But that's only 18.2 million bales of consumption which will add 1.1 million bales to carryover. Farmers and ginners ask me when cotton is going to 75 cents. We can't continue to overproduce and have 75-cent cotton. It just doesn't work.”
Dunavant blamed at least part of the increase in anticipated acreage on new crop insurance rules. “I think the insurance program in place today encourages over-production, poor farming practices and it needs to be altered to give you the type of protection that you as a cotton farmer need.”
Dunavant reiterated his January remarks at the Beltwide Cotton Conferences that if lower acreage or poor yields result in a 17.2 million-bale crop, “the pendulum swings the other way and we have a bullish situation.”
While U.S. growers seem destined to produce more cotton that it can consume, the balance of supply and demand in the world “is going in the right direction,” according to Dunavant.
“I think we are going to produce 91.35 million bales of cotton, an increase of over 6 million bales in world production. Consumption will rise to 91.8 million bales, a 1.7 million-bale increase, but the world carryover will go down again, by 400,000 bales to 34.5 million bales, even with the U.S. carryover going up. So the world numbers are not bearish. We in the United States have got things out of balance.”
Dunavant says over the next five years, U.S. textile consumption will continue to decline at an even faster rate than anticipated. “Textile consumption is going down. There is no doubt about it.”
However, the general movement of textile industries from developed countries to developing countries will create some new opportunities for U.S. cotton, the merchant said.
“Russia this year is going to import 1.6 million bales of cotton. Four years ago, they were consuming about 400,000 bales. I wouldn't be surprised to see Russia consuming about 3 million to 5 million bales in the next five years as their economy picks up. The big tariffs are coming off in the near future and I wouldn't be surprised to see them buying U.S. cotton.
“Turkey is buying 1.7 million bales of cotton and the primary seller is going to the United States. We are one of their favorite suppliers. Mexico is importing 2 million bales this year and the United States will be the supplier.”
Dunavant said Indonesia is on track to import 2 million bales, “but Korea, Japan, Hong Kong and Taiwan are now developed economies and their textile industries are going downhill like the United States. Five years ago, Japan bought 2 million bales. It will be 1.1 million bales this year. Korea, at 2 million bales five years ago, is at 1.4 million bales today.”
Brazil is rapidly growing its textile industry, noted Dunavant. “We see them importing 300,000 bales this year, although most of it is going to come from Paraguay and Argentina. Bangladesh is going to buy about 810,000 bales of cotton in the coming year, up from 450,000 bales four years ago.”
Dunavant says China will produce 19 million bales and consume 22 million bales of cotton in 2001. “China will import a small amount of cotton in May, June and July 2001. They've already bought 54,000 bales of U.S. cotton making the total for this year around 150,000 bales.”
However, when China becomes a member of the World Trade Organization in June or July 2001, “we believe that will dramatically change their posture on allowing import quotas for buying cotton in the world market,” Dunavant said. “In January-February 2002, we project that they will buy about 1.6 million bales minimum. Hopefully, a lot of it will be U.S. cotton.”
Dunavant says there will be a “real crisis” of quality cotton supply during the April-August 2001timeframe, especially if Australia receives heavy rainfall during its harvest season, which is about to get under way.
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