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, 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 than 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 over 6-million bale increase 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 of 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 time frame, 2001, especially if Australia receives heavy rainfall during its harvest season, which is about to get underway.
Unfortunately, the makeup of the U.S. carryover of 4.45 million bales does not include a high percentage of high quality cotton, due to problems in Texas (low strength, low staple, high bark) and the Mid-South and Southeast (short staple, low strength).
As for new farm legislation, Dunavant stressed that U.S. agriculture, “needs a safety net for cotton producers that gives them sound protection. Second, we must have a continuation of the marketing loan to allow U.S. cotton to be competitive with foreign growths. Third, we must have a marketing certificate program to keep the U.S. textile industry competitive with the cheap imports that are coming in.
“We must also have a marketing certificate program for the merchants and U.S. cotton cooperatives. And we must have a certificate program on date of sale not bill of lading date. If we do that, I believe U.S. exports will be 500,000 bales to a million bales higher every year.”
Dunavant also cautioned producers about recent consideration to raise the cotton loan rate from its present level of 51.92 cents. “I sympathize with the growing movement of farmers who want to raise the loan rate. I am not totally opposed to it.
“But I would caution you about over-production. There has not been a time that I can recall that when we raised the loan, we also raised U.S. production and foreign production. And when those things happen, I don't see how we get the price of cotton up.”
USA Rice meets with Mexican Rice Council
A group of USA Rice members and staff met with representatives of the Mexican Rice Council in Mexico City on Feb. 14 to exchange views on the anti-dumping petition filed with the Mexican government by the MRC against U.S. long grain milled rice. The USA Rice team reiterated the importance of Mexico as a market for U.S. rice (Mexico is our largest export market by volume, importing about 300,000 tons of U.S. rice annually, almost all in rough form), and expressed concern that considerable attention and resources on both sides will be diverted to the anti-dumping suit.
USA Rice indicated intention to vigorously defend and preserve access for U.S. rice in Mexico and also to send a message to other countries in Latin America that might seek to use similar tactics to keep out U.S. rice. In response to questions from the MRC about joint promotion activities in Mexico, USA Rice responded that their current promotion efforts remain ongoing, but that it was impractical to consider an increase in joint promotion activities with an anti-dumping suit unresolved.
The Mexican government is expected to make a preliminary determination on the MRC's position in June 2001. The USA Rice Council and the Rice Millers' Association agreed earlier this month to jointly fund up to $300,000 in legal expenses in connection with the anti-dumping case.
USA Rice also strongly objects to the MRC's assertion that milled rice exports to Mexico are causing injury to the Mexican rice industry. The organization views the MRC's action as an attempt to forestall tariff reductions under the North American Free Trade Agreement. Tariffs will fall to zero on January 1, 2003.
For more information, contact Bob Cummings in the Washington office at (703) 351-8161 or [email protected].