US cotton acreage is expected to be down by 5.2% this year, new figures show, as strong competing crop prices prompt farmers to switch to commodities like corn, soybeans, wheat and sorghum.
In its latest update, the National Cotton Council points to a few key factors that will shape the US cotton industry’s economic outlook this year.
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The past year was characterised by significant uncertainty and volatility in both the global economy and the world cotton market. Not surprisingly, the most challenging issue last year was the Covid-19 pandemic, which caused unprecedented disruptions in the supply chains and markets for the US and world cotton and textile industries during the first half of 2020.
“The Covid-19 pandemic devastated textile supply chains as retail outlets shuttered their doors for months,” the NCC says. “As the collapse in cotton demand persisted throughout 2020, the negative impacts were felt across the US cotton industry.”
In the early weeks of 2021, while the pandemic is still creating disruptions in various parts of the world, the overall economy is recovering at a much faster pace than originally expected, the NCC says. However, it warns that current economic projections for the US and global economies should be viewed with caution given the lack of clarity regarding the potential impacts of the ongoing pandemic.
In her analysis of the NCC Annual Planting Intentions survey results, vice president of economics and policy analysis, Jody Campiche, says the NCC expects 2021 US cotton acreage to be 11.5m acres – 5.2% less than 2020. The expected drop in acreage is primarily the result of strong competing crop prices. With abandonment assumed at 18.1% for the US, Cotton Belt harvested area totals 9.4m acres.
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By GlobalDataRegarding domestic mill cotton use, the NCC is projecting a partial recovery in US mill use at 2.8m bales during the 2021 crop year. US mills were severely impacted by the Covid-19 shutdowns in 2020.
World trade is estimated to be higher in the 2020 marketing year as consumption recovers from the Covid-19 pandemic. Based on sales and shipments for the year-to-date, US exports are projected to reach 15.8m bales in the 2020 marketing year. As a result of large carry-over sales from the 2019 crop year and increased purchases from China, US export commitments and shipments have been very strong for the 2020 crop year. As of 4 February, total commitments reached 14.1m bales while 7.8m bales have been shipped. Current commitments are at the highest level at this point in the marketing year since the 2010 crop year.
While export competition from Brazil remains strong, the US was able to regain market share in China in 2020 as a result of the Phase I agreement. The US also had increased opportunities for higher export sales to other markets in the 2020 crop year due to lower production in Australia, Pakistan, and Turkey.
US exports are projected to drop slightly to 15.4m bales in the 2021 marketing year. With large stocks in other major exporting countries and a partial recovery in Australia’s production, the US will continue to face strong export competition in 2021. When combined with US mill use, total off-take exceeds expected production, and ending stocks are projected to fall to 2.6m bales. If realised, US stocks represent one of the lowest levels in the last 20 years.
Campiche says world production is estimated to increase by 1.5m bales in 2021 to 115.6m due to a slight increase in acreage. World mill use is projected to increase to 120.9m bales in 2021. Ending stocks are projected to decline by 5.4m bales in the 2021 marketing year to 90.4m bales, resulting in a stocks-to-use ratio of 74.8%.
Although global stocks remain high, a tighter US balance sheet, low supply chain inventories, increased purchases from China, speculative money flow, weaker US dollar, higher grain and oilseed prices, and post-Covid demand expectations are contributing to bullish sentiment for cotton prices. However, the NCC predicts that additional restrictions related to the pandemic, large stocks outside of China, and low man-made fibre prices could put downward pressure on cotton prices in 2021.
