February 19, 1998

New York Cotton futures fell to a four-year low Thursday on concerns that U.S. exporters will lose business to Australia and other producers as Asian demand weakens.

Cotton for March delivery fell 1.26 cents, or 1.9 percent, to 64.17 cents per pound on the New York Cotton Exchange, the lowest since December 14, 1993. It was the largest one-day decline since November 10, 1997. Cotton prices have fallen 10 percent in the last three months as Asian economies weakened, thus reducing demand for cotton from the textile industry's largest cotton consuming region.

Earlier this week, China, the world's top cotton importer, said it plans to reduce cotton imports this year to protect domestic producers as its stockpiles grow. China, which last year imported approximately 1.8 million bales of cotton worth $724 million, wants to use its own cotton reserves now estimated at 13.6 million bales. China's cotton reserve is equal to two-thirds of the country's total output of 19.5 million bales in 1997.

The move indicates China is trying to protect its own industry as its economy slows along with the rest of Asia. Consequently, China has already imposed a temporary ban on cotton imports, leaving as much as 30,000 to 40,000 bales of foreign cotton languishing in port warehouses, according to traders. Chinese officials have not yet indicated when the ban will be lifted or how much 1998 cotton imports will be reduced, leaving many in the industry seriously concerned about the ongoing situation.

In other news, U.S. producers may see some competition for export business from Australian cotton growths in 1998. The country's cotton harvest began this week with initial production of high quality grades boding well for a record crop from the world's third largest cotton exporter, according to industry experts. Australia's Raw Cotton Marketing Advisory Committee (RCMAC) currently estimates the country's crop at a record 2.85 million bales with the potential to exceed more than three million.

Meanwhile, USDA's weekly export sales report contained a higher figure than most in the market had expected. Net export sales of 1997-98 crop cotton increased to 103,500 bales for the week ended February 12, according to the department. The figure is considerably higher than last week's sales of 60,700 bales despite Monday's market closure in observance of George Washington's birthday. Featured buyers were Turkey, Taiwan and South Korea. In addition, USDA reported net export sales of 1998-99 U.S. cotton totaled 17,300 bales for the same period, more than doubling the previous week's 5,300 bale figure.

Spot cotton sales slowed this week as only 4,598 bales of Texas/Oklahoma cotton were sold on the TELCOT electronic marketing system in the five trading days ended February 19. The figure is noticeably lower than the previous week when 73,665 bales were sold. Average daily prices received by producers on TELCOT ranged from 51.90 to 56.55 cents per pound during the week.

The 1998-99 cotton season is now underway. Planting will begin in the Texas Rio Grande Valley this weekend after heavy rains slowed fieldwork in the area. Beneficial rains also fell on the High and Rolling Plains of Texas this week adding to the subsoil moisture which will be critical at planting time. In fact, moisture accumulation since the first of the year on the High Plains is well ahead of last season.

Land preparation by growers throughout Texas and Oklahoma continues to progress well, however, most remain concerned about potential insect outbreaks because this year's winter has been so mild. Furthermore, the possibility of a cold front with temperatures low enough to eradicate insects is becoming remote. Still, the attention of most producers will be closely trained on weather developments in the next few weeks.