PCCA - Plains Cotton Cooperative Association Logo PCCA Commentator Magazine Masthead. Vol. 39, No. 1 | Spring/Summer 2006

Cotton Demand Expected to Remain Firm in 2006-07

Cotton Harvest

A chain of record U.S. cotton crops may be broken this year as adverse weather conditions at planting time have affected growers across the Cotton Belt. Although the U.S. crop could be smaller, analysts are optimistic that demand will remain firm, and U.S. export figures will remain high.

“This May, the market appears to be feeling the weight of back-to-back record U.S. crops, and the pipeline is now full of cotton worldwide,” said Lonnie Winters, PCCA’s vice president of marketing. “With a new crop going into the ground, we are optimistic that consumption will continue to outpace production, and we’ll continue to export U.S. cotton at a record pace in 2006-07. China will continue to be our largest customer and the greatest consumer of cotton worldwide,” he explained.

It was China’s increasing demand for cotton that kept the U.S. market firm throughout most of the 2005-06 marketing year, according to analysts. The trend is expected to continue in 2006-07 as most reporting agencies anticipate even stronger demand from China in the upcoming season.

In May, the International Cotton Advisory Committee (ICAC) pegged 2005-06 Chinese imports at 18.8 million bales, up considerably from the previous year’s figure. With the gap between 2006-07 Chinese production and use forecast to remain as high as it was in 2005-06, imports are projected to remain at record levels. In fact, Chinese imports are expected to account for approximately 45 percent of world imports in 2006-07.

“When over 40 percent of the world’s cotton consumption is dependent on the Chinese, any slowdown or change in the economy there is going to have a direct impact on U.S. cotton prices, and we’ll keep an eye open for any new developments,” Winters said. “If demand stays firm, and we think it will, the market also will closely watch weather issues across the U.S. and the world. The size of the crop, both domestically and worldwide, will have a large impact on market prices in 2006-07.”

U.S. cotton growers produced a 23.9 million-bale crop in 2005-06, upstaging the previous year’s record. As the 2006-07 season begins, most traders expect a smaller crop due, in part, to adverse weather at planting time across most of the Cotton Belt. In June, industry observers pegged the 2006-07 U.S. crop at roughly 20.0 million bales. However, weather developments in Texas could cause the figure to be lowered in future reports.

As May planting began on the Texas High and Rolling Plains, market watchers were tuned to the weather. A drought in South Texas continued to be news as the lack of precipitation brought with it the possibility of growers there producing only half of their average crop.

The drought affected cotton acres from the Corpus Christi area to the Lower Rio Grande Valley. South Texas dryland farmers shook their heads in despair as their stands withered in the fields while others kept the irrigation pumps running and hoped rain would fall to alleviate the climbing production costs.

“Mother Nature has been very kind to us the last few years, and we didn’t have any abandonment to speak of,” Winters said, “but with the uncooperative weather conditions in South Texas and possibly on the High and Rolling Plains, we will have some abandonment in 2006-07. The amount of rain we receive will determine exactly how much.”