Cotton Economics Research Institute Policy Modeling Group

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Cotton Economics Research Institute Policy
Modeling Group

• Darren Hudson, Director
• Maria Mutuc, Post-Doctoral Research Associate
• Don Ethridge, Professor Emeritus
• GLOBAL COTTON OUTLOOK
• 2012/12 2022/23
• Cotton Economics Research Institute
• Department of Agricultural and Applied Economics
• Texas Tech University
• Lubbock, TX 79409

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EXECUTIVESUMMARY
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• ECONOMIC FUNDAMENTALS
• Global growth is projected at 3.2 in 2012, to
  remain at 3.0 from 2013-2018 and slowdown to
  2.5 from 2019-22. This growth of 2.8 over
  2013-22 is below the long-term growth rate of
  3.7 from 1995-2008.
• U.S. growth is expected to slowdown from 2.1 in
  2012 to 1.8 in 2013 amidst a large output gap
  that emerged from the 2008-9 crisis.
• Cotton Mill Use
• Mill use is projected to grow by about 32 million
  bales over the next ten years beginning 2012/13.
  
• Mill use is projected to remain concentrated in
  Asia. By 2022/23, the nations/regions that are
  projected to lead the world in cotton mill use
  are (share of world mill use in parentheses)
  China (34), India (23), Pakistan (13), Turkey
  (5), Brazil (3), and Bangladesh (4).
• Cotton Production
• As productivity gains have slowed for the time
  being, yield growth is projected to decelerate
  from 2012/13 to 2022/23, growing by 0.5 per
  year. This annual gain is lower than the
  long-term average yield gain of 1.43.
• World cotton production is projected to increase
  from 118 million bales in 2012/13 to around 138
  million bales in 2022/23. This growth is lower
  than long-term average of 2.1 in the absence of
  new yield-enhancing technologies and flat
  acreage.
• By 2022/23, leading producers of cotton are
  projected to be (share of world production in
  parentheses) India (26), China (23), United
  States (12), Pakistan (9), and Brazil (6).
• World Cotton Trade
• World cotton trade is projected to contract in
  2012/13 and 2013/2014 as emerging markets fail to
  take up the slack in these years.
• From 2014/2015 throughout the projection period,
  world trade is projected to grow steadily at 3.8
  on average - slightly below the 4.1 growth in
  the last 10 years. It is projected to increase
  from 38 million bales in 2012/13 to 49 million
  bales in 2022/23.

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• China is projected to account for 31 of world
  imports along with (world import share in
  parentheses) Bangladesh (11), Turkey (7), and
  Pakistan (10) by 2022/23.
• The United States is projected to remain the
  worlds leading cotton exporter in 2022/23 with a
  29 market share. Increased competition in the
  export market (with projected export market share
  in parentheses) will come from India (12),
  Brazil (13), Australia (10), Uzbekistan (6),
  and WCA (9).

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GLOBAL and U.S. OUTLOOK
CERI
TTU
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MACROECONOMIC PROJECTIONS
REAL GDP GROWTH ADVANCED EMERGING/DEVELOPING
COUNTRIES

• Global growth is projected at 3.2 in 2012,
  slightly improving to 3.4 from 2013-2018 and
  slowing to 2.5 from 2019-22. This is below the
  average rate in 1995-2008 (3.7).
• Growth in emerging and developing economies is
  also expected to slow to 3.2 in 2012 as the
  world economy remains sluggish.
• Growth in advanced economies is projected to slow
  to 1.2 in 2012 with some recovery at 1.8 over
  2013-18.
• Economic recovery in the U.S. will remain fragile
  in 2012 with growth at 2.1 as demand growth
  continues to be uncertain.
• Chinas and Indias GDP growth is expected to
  correspondingly decelerate in 2012 to 7.8 and
  5.5, and in 2013 further fall to 6.9 and 4.7
  as their economies mature.
• Brazils economy is projected to grow at 1.7 in
  2012, lower than the 2.7 growth in 2011.

REAL GDP GROWTH MAJOR COTTON PRODUCING
COUNTRIES
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WORLD COTTON PRODUCTION COTTON MILL USE

• Mill use is projected to grow by about 32.2
  million bales over the next ten years beginning
  2012/13.
• World cotton production is projected to increase
  from 118 million bales in 2012/13 to around 137
  million bales in 2022/23. This growth is lower
  than long-term average of 2.1 in the absence of
  new yield-enhancing technologies and flat
  acreage.
• Minimal fluctuation in cotton acreage is
  projected in the next ten years with harvested
  area increasing from 84 million acres in 2012/13
  to 92 million acres by 2022/23.
• As productivity gains have leveled off for the
  time being, yield growth is projected to
  decelerate from 2012/13 to 2022/23, growing by
  about 0.5 per year. This annual gain is lower
  than the long-term average yield gain of 1.43.

WORLD COTTON HARVESTED AREA YIELD
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WORLD COTTON TRADE

• World cotton trade is projected to contract in
  2012/13 and 2013/2014 as emerging markets fail to
  take up the slack in these years.
• From 2014/2015 throughout the projection period,
  world trade is expected to grow steadily at 3.8
  on average - slightly below the 4.1 growth in
  the last 10 years. It is projected to increase
  from 38 million bales in 2012/13 to 49 million
  bales in 2022/23.
• Chinas import levels are anticipated to be
  around 12 million bales per year from 2012/13 to
  2022/23 close to 2010/11 import level.
• Following large upward corrections in 2012/13 and
  2013/14, the stocks-to-use ratio is projected to
  decline to 40 in 2022/23.
• As countries gradually shake off their excess
  ending stocks in the absence of large adjustments
  in consumption and production, the world cotton
  price (A-index) is relatively flat - projected to
  lie within a narrow range of 82-93 from 2012/13
  to 2022/23.

WORLD COTTON PRICE STOCKS-TO-USE RATIO
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U.S. PRODUCTION, EXPORTS MILL USE

• Following slightly higher production in 2012/13,
  cotton output in the U.S. is projected to average
  at 15.6 million bales for the rest of the
  projection period.
• Cotton exports are projected to remain below 15
  million bales per year through 2022/23, moving
  from 17 million bales in 2012/13 to 14.7 million
  bales in 2022/23.
• Cotton mill use is projected to average 3.1
  million bales a year from 2012/13 to 2022/23
  below the long-run average of 3.7 million bales.
• Over the projection period, cotton acreage is
  projected to be around 8.8 million acres.
• National average cotton yield was 1.65 bales per
  acre in 2012/13. It is expected to grow minimally
  by 0.4 per year thereafter until 2022/23.

U.S. HARVESTED AREA YIELD
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WORLD COTTON TRADE U.S. EXPORTS

• World cotton trade is projected to be 32 million
  bales in 2012/13 and increase steadily to only
  48.5 million bales in 2022/23 as long-term global
  growth slows down following structural
  adjustments in maturing economies such as Brazil,
  China and India.
• Exports from the United States are estimated to
  account for about 32 of world cotton trade in
  2012/13. This share is projected to be maintained
  at 29 for the next ten years.
• Over the next ten years, the share of world
  cotton production of major cotton producers is
  projected to stay close to 2012/13 levels.
  However, India is projected to eclipse China as
  the largest cotton producer. The U.S. is
  projected to remain as the third leading producer
  after China.

SHARE OF WORLD COTTON PRODUCTION 2022/23
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MAJOR GROWTHMARKETS
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CHINA COTTON IMPORTS

• Chinas imports of cotton are projected to drop
  by about 50 in 2012/13 as a result of rising
  inventories following government purchases to
  support domestic prices and incomes.
• Thereafter, imports are projected to grow by a
  modest 2.5 per year through 2022/23 and maintain
  an average of about 12.3 million bales of imports
  per year.
• As wages have risen by as much as 20 each year
  from 2002, the cost of textile production in
  China has increased and textile expansion has
  slowed with some mills relocating to Bangladesh,
  Vietnam, and other Asian countries.
• Chinese mill use growth is projected to
  decelerate, picking up only 10 million bales from
  2013/14 to 2022/23 after dropping by 7 in
  2012/13.
• Cotton production is not anticipated to increase
  significantly and is projected to be 31 million
  bales per year, on average, from 2012/12 through
  2022/23.

CHINA COTTON PRODUCTION MILL USE
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INDIA COTTON MILL USE IMPORTS

• A sustained growth in the cotton textile industry
  is projected to increase cotton mill use by an
  average of 4.2 through 2022/23. This growth is
  lower than the 5 average increase over the past
  decade (2002-11) due to weaker global outlook in
  the next few years.
• However, imports of cotton will initially
  increase in 2012/13 as production is cut back.
  Thereafter, imports steadily decline due to
  Indias production increases in the next 10
  years.
• Cotton mill use in Bangladesh is projected to
  rebound to 3.6 million bales in 2012/13 and reach
  5.3 million bales through 2022/23, growing by
  4.7 per year, sustaining its position as one of
  the main textile expanding countries in the
  world.
• With low production, most of the cotton mill use
  will be sourced from imports. The U.S. is a
  leading supplier of cotton to Bangladesh but
  faces competition from India, Australia, and
  African countries.

BANGLADESH COTTON MILL USE IMPORTS
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VIETNAM COTTON MILL USE IMPORTS

• Following the same pattern as Bangladesh,
  Vietnams cotton imports are projected to
  increase by 53 (to 3 million bales) through
  2022/23, growing by 6 per year, to support their
  textile expansion. This growth is driven by
  Chinas textiles becoming relatively more
  expensive.
• A modernizing and expanding textile industry in
  Pakistan is projected to boost cotton mill use by
  around 6 million bales from 2012/13 through
  2022/23.
• From 2012/13 through 2022/23, cotton area is
  projected to increase by 14, to 8.5 million
  acres. Although Bt cotton has not been officially
  adopted in Pakistan, unofficial numbers indicate
  that Bt cotton is grown on over half of total
  cotton acreage.

PAKISTAN COTTON MILL USE PRODUCTION
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DECLINING/STAGNANT MARKETS
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TURKEY MILL USE, PRODUCTION IMPORTS

• As textile producers gain more access to the
  markets within the Commonwealth of Independent
  States (CIS) in the latter half of the projection
  period, mill use is projected to recover as well.
  Mill use is projected to increase to 7.5 million
  bales in 2022/23.
• Production is projected to increase by only 1.6
  million bales through 2022/23 following a decline
  in 2012/13 as productivity gains level off in the
  second half of the projection period.
• Mill use in Mexico is projected to slowly pick up
  through 2022/23 with the textile industry
  absorbing only 469,000 bales from 2012/13 (as
  they continue to face tougher competition from
  Asia in the next several years).

MEXICO COTTON MILL USE IMPORTS
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SOUTH KOREA, TAIWAN JAPAN COTTON IMPORTS

• South Korea, Taiwan, and Japan continue to
  experience steep declines in cotton imports -
  from a combined 2.6 million bales in 2012/13 down
  to less than a million bales by 2022/23 amidst a
  shrinking textile sector in these countries.
• The overall decline of the spinner and textile
  industry in the EU is projected to continue.

EU COTTON PRODUCTION MILL USE
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MAJOR COMPETITORS
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INDIA COTTON TRADE

• India became the second largest cotton producer
  in the world in 2006/07 and is expected to
  surpass China as the leading cotton producer by
  2022/23.
• India is also projected to be the worlds second
  largest exporter over the projection period with
  exports growing by 4 per year from 2013/14
  through 2022/23 following a large decline in
  2012/13.
• Harvested cotton area in India is projected to
  increase, rising by 17.7 (5 million acres)
  from 2012/13 to 2022/23 below the 59 growth in
  acreage (11.2 million acres) from 2002/3 to
  2011/12.
• Yield gains over 2012/13 to 2022/23 are projected
  at 1.2 per year - below the long-term average of
  3.6 on account of mature Bt technology (over 86
  of national cotton acreage is already devoted to
  Bt).

INDIA COTTON HARVESTED AREA YIELD
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BRAZIL COTTON EXPORTS

• After declines in Brazilian cotton exports in
  2012/13 and 2013/14 as a result of tepid demand
  from China, subsequent growth is projected to be
  limited to 15 per year, considerably weaker than
  the 20 average in the last 10 years, as global
  consumption slows.
• Production gains will come from both increased
  acreage and yields. Cotton is projected to
  remain as a favorable second crop grown in
  rotation with soybeans or corn. Acreage is
  projected to average 2.7 million acres per year
  from 2012/13 to 2022/23 same as the long-term
  average from 1991/92 to 2009/10 (2.7 million
  acres).
• Yields are projected to increase to 2.6 bales per
  acre through 2022/23.
• Mill use is projected to grow steadily but slowly
  ( 1 per year) as Brazils textile industry
  mimics the growth in global consumption.

BRAZIL COTTON PRODUCTION MILL USE
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UZBEKISTAN COTTON EXPORTS

• Cotton exports of Uzbekistan will remain steady
  at around 2.9 million bales per year over the
  projection period they are projected to account
  for 6.5 of world cotton trade in 2022/23.
• As a group, the WCA region (Benin, Burkina Faso,
  Chad, and Mali) is projected to account for 8.8
  of world cotton exports in 2022/23.
• With a relatively small textile industry, cotton
  exports are an important component of economic
  development in the region.
• Projections are for approximately 0.2 million
  bale increase in both production and in exports
  per year through 2022/23.

WEST CENTRAL AFRICA COTTON EXPORTS
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AUSTRALIA COTTON EXPORTS

• Exports are anticipated to increase from 2012/13
  to 2022/23 due to sustained production coupled
  with high carryover stocks.
• Resumption of significant cotton production and
  exports is contingent on greater water
  availability.
• Following significant acreage declines in 2012/13
  and 2013/14, production is projected to pick up
  by around 1.7 million bales from 2014/15 through
  2022/23 while exports increase by roughly a half
  a million bales over the same period.
• Other Africa Region (Cote dlvoire, Nigeria,
  Zimbabwe, and others) is projected to export as
  much as 2.5 million bales by 2022/23, up from 1.7
  million bales in 2012/13.

OTHER AFRICA COTTON MILL USE, PRODUCTION
EXPORTS
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• MAIN POINTS
• The global outlook for cotton remains less
  optimistic than baselines in years prior to the
  2008-9 crisis as a result of a weaker global
  economy in the years ahead as advanced countries
  continue to work on narrowing current output gaps
  and deficits and as emerging economies mature
  together with recent developments in the sector
• As productivity/yield gains have leveled off
  temporarily for the next several years (given
  technology expectations) and with acreage
  responding to lower cotton/grains prices (with
  some acreage shifts in some countries such as
  China), growth in production is slowing.
• As countries continue to shake off excess stocks
  in the next few years, more significantly in
  China, and no drastic change in production and
  consumption, cotton prices are projected to
  decline in 2012/13 and 2013/14 and to steadily
  increase to 93 cents in 2022/23.

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