May 2000

FEATURE COMMODITY ARTICLES

2000/01 World Cotton Production Down From 1999/2000 Level

World cotton area and production for the 2000/01 season depend on several factors, with cotton prices and those of competing crops playing a crucial role. Domestic and world financial condition also influence world output along with government policies and weather. (See Charts.)

The Cotlook A-Index represents the price level of international raw cotton offered to the market on a daily basis from several cotton trading countries. Generally, a very strong direct relationship exists between cotton area and this price index for the previous year. This movement is well illustrated by Charts 1 and 2 for both area and output from 1981 to 1999. During this period area and output seem to move in tandem (one year later) with price. Output showed less of a response to price during the 1996-to 1999-period as above average yield offset area declines during two of the years.

Area shifts also depend upon the price level of other crops in relation to the price of cotton and expected profit margins in comparison to these other crops. On average, from their most recent peaks, corn, wheat, and rice, illustrated by the grain index, and soybeans illustrated by fat and oil index (Chart 3) have been good alternatives to cotton, as cotton prices have fallen faster than these crops. The relative stronger prices of competing crops point to a continued downward slide in cotton area. However, cotton prices have increased rapidly since the beginning of this calendar year. During the previous two years, prices have fallen during the same period (Chart 4). This upward movement in price could hold 2000/01 world area and production near the 1999/2000 level.

With these factors affecting production and area, preliminary indications are that world cotton production and area in 2000/01 could be about 86.0 million bales and 32.0 million hectares. This compares closely with the 32.1 million hectares for 1999/2000, but 1.3 million bales below the 87.3 million bales for 1999/2000 as lower foreign production more than offsets a larger U.S. crop.

Table 1 illustrates area, yield, and production estimates for 1989/90 through 1999/2000 and a forecast for 2000/01. The price line on the Charts 1 and 2 shows an average annual market year price beginning in 1981/82. The 1999/2000 price is an average price from August-April for 1999/2000.

The United States cotton is forecast at 19.0 million bales, up 2.0 million from 1999/2000. This estimated assumes historical average abandonment and yields. A total of 6.3 million hectares is expected to be sown for 2000/01. The Delta shows a 6-percent increase, while the Southeast region indicates a 5-percent rise from 1999/2000. Producers in the Southwest, mainly Texas and Oklahoma intend to plant 3-percent more area than last year. The western states of Arizona, California, and New Mexico are expected to increase area by 11-percent. Producers intend to plant 25-percent less Extra Long Staple than were planted in 1999/2000.

The first official USDA forecast of individual foreign country estimates for area, yield, and production will be released in July. The following paragraphs contain brief comments about prospects for the major foreign cotton producers.

China: The Ministry of Agriculture (MOA) has officially forecast 2000/01 production at 15.0 million bales, a decline of 15 percent from 1999/2000, while some analysts expect production to remain flat. Both positions have merit. Few farmers could have anticipated the extreme price drops that took place this for 1999. As recently as last spring, many sources were convinced that the Chinese government would not allow a price reduction of more than 10 percent. However, prices fell as much as 40 percent in 1999 and many farmers may reassess their planting decisions for 2000. Yields are also likely to remain low as farmers commit less time and capital to a crop with declining returns.

Seed cotton prices have improved in recent months as low lint prices have triggered increased consumption. Industry reports show that the trend toward increased use of synthetic fibers has reversed itself, at least in the short term, since cotton has become much more competitive. In addition, MOA sources and anecdotal evidence suggest that many farmers have few or no alternatives to cotton as a cash crop, since much of the land currently planted to cotton is unsuited to other cash crops such as fruits and vegetables. Thus, while area is likely to decline form the current year, it is unlikely that production will fall as low as the MOA forecast.

India: Assuming a timely onset of the 2000 monsoon and normal weather during the crop season, 2000/01 cotton production is forecast at more than 12.0 million bales, well below the 1999/2000 production estimate at 12.8 million. The reason behind the drop in production is the reduced area due to continued low domestic cotton prices. Prices have declined for the second year in a row due to excess supplies and low but rising international prices.

Area planted to cotton in northern states has already declined over the past few years (from 2.07 million hectares in 1996/97 to 1.47 million hectares in 1999/2000); thus any further area decline in the region would be marginal due to the limited scope of an additional shift in cotton area to competing crops (paddy/sugarcane). In the central cotton zone cotton area is expected to expand marginally in Maharashtra, due to higher procurement prices offered under the Maharashtra state monopoly procurement scheme (15-20 percent higher than market prices), However, some cotton area in the other central zone states is expected to shift to competing crops (coarse cereals in Gujarat/ Madhya Pradesh and tobacco/chilies in southern states). The net impact will likely result in a decline in 2000 planting from the 1999 estimated planted area of 8.7 million hectares and a record 1998 area of 9.3 million hectares.

Pakistan: Lint production for the outyear is forecast below the 1999/2000 level. Area and production for 2000 are forecast to decline from this year's level as farmers shift out of cotton due high input costs and low prices combined with a return to normal yields. Current 1999/2000 farm gate seed cotton prices are about 40 percent or 10 cents per pound lower than the average 1998/99 price, despite government efforts to support prices. Alternative crops to cotton are expected to be corn, sunflower, sugarcane, and other minor crops.

Uzbekistan: Despite the Government of Uzbekistan's long-standing goal of stabilizing cotton production at roughly 4.0 million tons of seed cotton -- nearly 5.7 million bales of lint -- which has not been achieved since 1995, nor is production likely to reach the target in 2000/01. Officials have forecast area to drop 3 percent from last year, to 1.4 million hectares. Infrastructure and input problems persist, including outdated and inefficient irrigation systems, poor weed and insect control, inadequate machinery, poor crop rotation practices, and, perhaps most important, the continued widespread use of low-quality seeds. Given the slow pace of reform and assuming normal weather, 2000/01 production is likely to fall below the 1999/2000.

Ronald R. Roberson, Cotton Chairperson
Phone: (202) 720-0879
E-Mail: roberson@fas.usda.gov

James Crutchfield, India and Pakistan Analyst
Telephone (202) 690-0135
E-mail: crutchfield@fas.usda.gov

Mark Lindeman, Uzbekistan Analyst
Telephone (202) 690-0143
E-mail: lindeman@fas.usda.gov

Paulette Sandene, China Analyst
Telephone (202) 690-0133
E-mail: sandene@fas.usda.gov

Table: 1
World Cotton Area, Yield, and Production

World Palm Oil Production to Increase Again in 1999/2000

World production of palm oil has continued to increase dramatically. Projected at 21.2 million tons for 1999/2000, production will be up 42 percent over the last 5 years and up 95 percent in the last 10 years. World production is dominated by two countries in the Southeast Asia region: Malaysia, which produces 50 percent of world output, and Indonesia, which produces 30 percent. After declining 4 percent in 1997/98 due to dry weather and haze from forest fires, output increases have been above trend. Output increased 13 percent in 1998/99, and is projected to increase 10 percent in 1999/2000, compared to an annualized rate of increase of 7 percent since 1989/90. Favorable rainfall in key areas assisted in increasing output during the last 2 years. (See Table.)

It is unclear how rapidly expansion will continue in the next several years. FOB prices in Malaysia for refractionated-bleached-deodorized (RBD) palm oil so far this marketing year have averaged US$328 per metric ton, lower than for any full year since 1990/91. Prices in October through December of 1998/99 exceeded US$600 per ton. The impact on output of low prices may be delayed because of the long production cycle where new plantings do not begin producing for 2.5 to 3 years and do not reach peak production for 10 years.

Output of crude palm oil in Malaysia in 1999/2000 is estimated at 10.8 million tons, up 11 percent from 1998/99. Fruit bearing area is expected to expand to 2.8 million hectares in 1999/2000, up 5 percent from 1998/99, and it is forecast by the USDA agricultural officer in Kuala Lumpur to increase a further 9 percent in 2000/01 to 3.1 million hectares.

In recent years, the Malaysian Government has encouraged publicly-listed companies to form consortiums for overseas joint ventures in order to globalize Malaysia’s oil palm industry. Malaysia has taken the lead in developing joint ventures in oil palm plantations with other producing countries such as Indonesia, the Philippines, Columbia, Guyana, Nigeria, and Ghana.

Indonesia crude palm oil production is forecast to increase by 10 percent to 6.4 million tons in 1999/2000 as trees planted during previous seasons start to bear fruit. This upward trend will continue in 2000/01, when expectations are that output will increase by a similar amount. Beyond 2001, production growth may slow temporarily reflecting the halt in new planting during 1998 and 1999. For the long term, sources indicate that a goal of 15 million tons of palm oil production has been set for 2012.

Little or no expansion in palm oil area has occurred since the economic crisis hit in mid-1997. The USDA agricultural officer in Jakarta forecast area planted to increase 5 percent, to 3.2 million hectares in 2000/01, due to the improved financial situation in Indonesia. Area harvested is around 65-70 percent of total area planted and is forecast by the agricultural officer to increase from 2.2 million hectares in 1999/2000 to 2.6 million in 2000/01.

After seven years of level production from 1990/91 to 1996/97, Nigerian palm oil output has begun to increase. Output, which had been about 600,000 tons, jumped to 740,000 tons in 1998/99, and is estimated at 760,000 tons for 1999/2000. Existing farms are undergoing expansion as farmers become increasingly aware of the economic potential offered by palm production. Despite constraints on funds available to producers, virtually all palm estates visited in recent field travel reported some degree of field expansion. Additionally, palm oil production has benefitted for the second year in a row from good rainfall distribution.

Palm oil production in Columbia was favorably affected in 1998/99 by increased rainfall related to the La Nina weather phenomenon, as output increased 16 percent to 490,000 tons. With more normal conditions, output is forecast to increase just 2 percent to 500,000 tons in 1999/2000.

Over the next 3 to 5 years, palm production is forecast by some in the industry to grow at an annual rate of 3 percent. Palm oil is the only oil-bearing crop that has shown growth in production during the 1990's, but the expansion has begun to slow down. Production grew in the first eight years of the decade at an annualized rate of 8 percent.

The Thailand palm oil industry continues its expansion as a greater number of palm trees reach full maturity. Production of palm oil continues to lag consumer demand for edible oils, and Thailand uses domestically 98 percent as much as it produces. Production for 1999/2000 is estimated at 500,000 tons, up 25 percent from the drought reduced crop in 1998/99.

Cote d’Ivoire palm oil production increased 3 percent to 305,000 tons in 1998/99 and is forecast to increase to 310,000 tons in 1999/2000. More efficient management and high yields from young trees are boosting output. However, expected increased production is moderated by low yields from the large proportion of aged trees and the increasing area out of production due to replanting.

Output of palm oil in Papua New Guinea is projected at 310,000 tons for 1999/2000, up from 290,000 tons in 1998/99. Yield per hectare in Papua New Guinea is among the highest, if not the highest, in the world due to a favorable climate, the quality of seed stock, and the quality of the crop cultural practices being used.

Paul Provance, Oilseeds Chairperson
Telephone: (202) 720-0881
E-mail: provance@fas.usda.gov

World Grain Charts for 2000/01

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