Southern Regional Outlook Conference
Atlanta, Georgia
September 27, 2000
Cotton Situation and Outlook
by
Carl G. Anderson
Professor and
Extension Economist-Cotton Marketing
Texas Agricultural Extension Service
Texas A&M University
College Station, Texas 77843-2124
World Cotton
2000/01





“A” Index is up 11 cents from September
a year ago.
Production is the same.
Consumption is up 5 million bales.
World stocks are down 7 million bales.
More use, less stocks implies higher
prices.
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World Cotton Supply and Demand
Million Bales
2000/01
2001/02
39.92
86.75
126.67
34.35
90.23
124.58
Mill Use
Ending Stks.
92.57
34.35
92.00
33.61
Stocks/Use
“A” Index
37.11
61.23
36.53
71.00
Beginning Stks.
Production
Total Supply
Sources: USDA/WASDE Supply/Demand 2000/01, 9/12/00
2001/02 projected by Carl Anderson; 2001/02 price by ICAC
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Economic Issues
U.S. has strong economy and dollar
 More textile imports
 Asian economies - improving slowly
 Europe weak
 Polyester price up
 Implies strong demand for cotton

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Cotton: World Stocks/Use Vs. “A” Index
120
100
80
60
40
20
Stocks/Use
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"A" Index
-0
0
A
ug
-9
9
A
ug
-9
8
A
ug
-9
7
A
ug
-9
6
A
ug
-9
5
A
ug
-9
4
A
ug
-9
3
A
ug
-9
2
A
ug
-9
1
A
ug
-9
0
0
A
ug
Cents/Lb. and Ratio
August 1990 - September 2000
Cotton: World Production, Consumption,
Stocks/Use, and “A” Index
Consumption
Production
120
"A" Index
100
90
80
Stks/Use
80
60
40
70
20
60
0
6 7 7 8 8 9 9 0 0 1 1 2 2 3 3 4 4 5 5 6 6 7 7 8 8 9 9
01
-8n-8 g-8n-8 g-8n-8 g-8n-9 g-9n-9 g-9n-9 g-9n-9 g-9n-9 g-9n-9 g-9n-9 g-9n-9 g-9n-9 g-9n-9 g 9
0
g
2
a
a
a
a
a
a
a
a
a
a
a
a
a u
g
AuJ AuJ AuJ AuJ AuJ AuJ AuJ AuJ AuJ AuJ AuJ AuJ AuJ A
Au
Monthly
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Price and Ratio
Million 480 Lb. Bales
100
20
20
0
0
Stks/Use
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Prod
Cons.
20
01
/
A Index
Cents/Lb.
40
02
40
98
/9
9
60
95
/9
6
60
92
/9
3
80
89
/9
0
80
86
/8
7
100
83
/8
4
100
80
/8
1
Million Bales
Foreign Cotton Production, Use, %
Stocks/Use and “A” Index,
1980/81-2001/2002
Next
"A" Index
1F
/0
0
20
Harvested Acres
Previous
00
99
/0
9
98
/9
8
97
/9
7
96
/9
6
/9
5
95
/9
4
94
/9
3
93
/9
/9
92
90
91
/9
0
/9
89
2
Cents/Lb.
100
90
80
70
60
50
40
1
74
72
70
68
66
64
62
19
Mil. Harv. Acs.
Foreign Cotton Area and “A” Index
“A” Index Versus Exporting Nations
Stocks to Domestic Use Percent
100
80
80
60
60
40
40
20
20
0
76
78
80
82
84
86
"A" Index
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88
90
92
94
96
98 000
2
Exp. Nations Stks/Use
Ratio
Cents/Lb.
100
China: Production, Consumption,
Imports, Exports, and Ending Stocks
30
20
15
10
5
Imports
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Exports
Next
Prod.
Cons.
00
20
99
19
98
19
97
19
96
19
95
19
94
19
93
19
92
19
91
19
90
0
19
Million Bales
25
Ending Stks.
0
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Ending Stks.
20
19
19
19
19
19
19
19
19
19
19
"A" Index
00
0
99
5
98
20
97
10
96
40
95
15
94
60
93
20
92
80
91
25
90
100
Million Bales
Cents/Lb.
China: “A” Index and Ending Stocks
Cotton: World Ending Stocks
Showing China Ending Stocks,
1990/91 - 2000/01
Million Bales
50
40
30
20
10
0
1990 91
92
93
94
95
World Ending Stocks
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96
97
98 1999 2000
China Ending Stocks
China Cotton Supply and Demand
Million Bales
1998/99 1999/00 2000/01
Beginning Stks.
Production
Imports
Total Supply
19.96
20.70
0.36
41.02
21.13
17.60
0.12
38.85
14.95
17.50
0.70
33.15
Domestic Use
Exports
Total Use
Ending Stks.
19.20
0.68
19.88
21.13
22.20
1.70
23.90
14.95
22.20
0.70
22.90
10.25
Source: USDA/WASDE Supply/Demand, 9/12/00
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Cents/Lb. and Ratio
Cotton: U.S. and Foreign Stocks/Use, Nearby
Futures, and “A” Index, Aug. 1989/90 - Aug. 1993/94,
and Aug. 99/00 - Sept. 00/01
100
80
60
40
20
0
A89/90
A90/91
A91/92
A92/93
A93/94
A99/00
A00/01
Monthly: Beginning August 1 Crop Year
A Index
Nearby Futures
U.S. S/U
For. S/U
99/00 For. S/U
99/00 U.S. S/U
00/01 For. S/U
00/01 U.S. S/U
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120
20
100
80
15
60
10
40
Stks/Use
Previous
Prod.
Next
Use
02
20
01
/
98
/9
9
95
/9
6
92
/9
3
0
89
/9
0
0
86
/8
7
20
83
/8
4
5
North Delta
Cents/Lb.
25
80
/8
1
Million Bales
U.S. Cotton Production, Use, %
Stocks/Use and North Delta Price,
1980/81-2001/2002
12
100
10
80
8
60
6
40
4
2
20
0
0
1985
88
91
Exports
Previous
94
Domestic Use
Next
97
A Index
2000
Cents/Lb.
Million 480 Lb. Bales
U.S. Cotton Domestic Use,
Exports, and “A” Index
25
100
20
80
15
60
10
40
5
20
0
0
1972
78
84
90
96
99
Calendar Year
U.S. Mill Cons.
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Net Domestic Cons.
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U.S. Share
Percent
Million 480 Lb. Bales
U.S. Mill Consumption, Net Domestic
Consumption and U.S. Share, 1972-1999
Cotton Futures: December 1992 and
2000 Settlement Prices
80
75
December 92
Cents/lb.
70
65
60
55
December 00
50
45
DJ F M A M J J A S O N D J A M A M J J A S O N D
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Cotton Futures: December 1993 and
2000 Settlement Prices
70
December '93
Cents/lb.
65
60
55
December '00
50
DJ F M A M J J A S O N D J A M A M J J A S O N D
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World Cotton Prices: “A” Index, Nearby
Futures, AWP and U.S. Loan Rate
105
"A" Index
Nearby Futures
Cents/Lb.
85
65
45
Loan Rate (51.92)
AWP
25
1
7
9/ 1/9
Previous
1 1
98 5/1 8/3
99 5/3 8/2
00
5/ 8/
/
/
/
1
1
/3
1
September 1996 - September 20, 2000
Next
1 1 0
5/ 8/0/0
2
9/
6/
2/
0
6/ 0
9/
6/ 00
16
6/ /00
23
6/ /00
30
/0
7/ 0
7/
7/ 00
14
7/ /00
21
7/ /00
28
/0
8/ 0
4
8/ /00
11
8/ /00
18
8/ /00
25
/0
9/ 0
1/
0
9/ 0
8
9/ /00
15
/0
0
Cents/Lb.
Weekly “A” Index Versus Nearby
Futures Settlement Price
70
65
60
55
50
45
"A" Index
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Nearby Futures
December 2000 Cotton Futures Settlement
Price, U.S. Ending Stocks/Use, and Foreign
Ending Stocks/Use
72
For. Stks/Use.
For. Stks/Use
Proj. 00/01
60
50
40
U.S. Stks/Use
62
30
20
57
U.S. Stks/Use
Proj. 00/01
Settlement Price
12
/
11/6/
4/98
99
2/
1
3/
1
4/
1
5/
3
6/
1
7/
1
8/
2
9/
10 1
11/1
12/1
/1
1/
2
2/
1
3/
1
4/
3
5/
1
6/
1
7/
5
8/
9/ 1
20
/0
0
52
Based on 441 contract days
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10
0
Percentage
Cents/Lb.
67
3
1
0
-1
-4
80
-2
60
-3
Nearby Futures Price
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Long less Short
Week
40
Cents/Lb.
3
06/25
09/17/94
12/09/94
02/02/94
05/24/94
08/19/95
11/11/95
01/03/95
04/26/95
07/19/96
10/12/96
12/04/96
03/27/96
06/21/96
09/13/97
11/05/97
02/28/97
/2 /9
5/ 0/97
15 8
/
108/7 98
01 /30/98
04/22 /98
07/16/99
10/09/99
12/01/99
/3 /9
3/ 0/99
3
6/ 1/09
2
9/ 3/00
15 0
/0
0
Millions
Net Bale Commitments of Speculative
Traders in Cotton Futures
Average Nearby Futures Price, January 1, 1994 - September 15, 2000
120
2
100
World: Historical Supply/Demand Price
Stocks/Use “A” Index
Million Bales
Cents/Lb.
August ’93
December ’93
March ’94
August ‘94
41.1
39.2
36.6
32.8
55.5
59.8
82.1
76.7
August ’00
September ‘00
38.0
37.1
60.9
62.0
August ’01 Proj. ?
36.5
71.0
Source: USDA/WASDE
Projection by Carl Anderson
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Futures Prices
September20, 2000
Year
2000
2001
December
63.15
63.95
Year
2000
2001
Implications
1. Stable market
2. U.S. export dependent
3. U.S. with larger carryover
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July
66.05
65.88
Pricing Strategies

Puts for price insurance

Buy puts, sell out-of-the-money calls

Forward contracts - problems with deep
discounts, financial security

Join marketing association or gin pool
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Keys to Profitable Cotton Industry








Industry teamwork
Technological advances
Production costs under 65 cents/lb.
Risk versus alternative crops
Increase yields/acre
Reduce cost/pound
Producer performance accounting
Expand world demand
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Summary

2000/01: Less world supply
More use
Higher price

2001/02: World production near use
U.S. production more than use
U.S. supply up
Price implications: “A” Index = 65-75 cents ?
December ‘01 futures = 62-72 cents ?
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