COTTON
Situation and Outlook for the 2001-02 Crop
Charles Curtis, Jr.
Professor & Extension Economist
Department of Agricultural & Applied Economics
Clemson University
2001-02 Cotton Crop Highlights

US plantings (all cotton) are estimated at 16.19 million acres with acreage
increases in virtually every state beltwide. (Only Virginia had a slight decrease.)
Harvest acres (all cotton) are estimated at 14.14 million reflecting approximately
normal abandonment of acres.

U. S. cotton production is estimated at just under 20 million bales with a yield of
679 pounds per acre, which makes the 2001-02 crop supplies the largest on record.

Estimated carry-in (all cotton) for 2001 of 6.03 million bales is 71 percent above the
1990’s average.

Mill use of cotton is projected at a weak 8.3 million bales of offtake, down
significantly from the 90’s average.

Export disappearance is projected a strong 9 million bales well above the 1990’s
export average of 6.79 million bales.

December cotton futures for the 2000 crop are below 36¢ (9/21/01) reflecting huge
supplies and weaker off take.

Producers will be dependent upon loan deficiency payments for income protection
for the foreseeable future. Sale at harvest for LDP eligible cotton and replaced
with 42¢July ’02 calls is suggested as a strong potential alternative.
US Cotton Acreage, Yield and Production
The USDA currently estimates that 16.19 million acres were planted to all cotton in 2001. Upland
plantings were up 13 percent from 2000 plantings. This acreage increase occurred despite significantly
lower prices that prevailed for the 2000 crop. This increased acreage has been attributed to the relative
projected profitability of cotton with its LDP as compared to the other spring crops available for planting.
All cotton production is forecast at 19.99 million 480-pound bales, up 15 percent from 2000. The yield is
expected to average 679 pounds per harvested acre, up 47 pounds from last year. If realized, this would be
the largest production on record. The record production is a combination of the second highest harvested
acreage since 1962, coupled with above average yields throughout most of the cotton belt. Nationwide,
1
producers expect to harvest 14.14 million acres, nine percent above last year. Upland cotton accounts for
14.0 million harvested acres, over 9 percent above 2000. Upland cotton production is forecast at 19.4
million 480-pound bales, a 16 percent increase from 2000.
USDA’s September 2001 upland harvested acre estimates for selected Southern Region states appear in
table 1. Upland harvested acreage is projected to increased 7 percent to 14 million acres beltwide. In the
Southeastern states (Alabama, Florida, Georgia, North Carolina, and South Carolina), plantings were
behind average for most of the season. The weather was hot and dry while plantings were completed.
Prevented plantings in the Southeast were significant with Alabama, Florida, Georgia and South Carolina
most affected. For the crop that did get planted, timely beneficial rains have occurred in most areas. Area
harvested in the region is expected to be up from last year in all states except Virginia. The Delta
(especially Louisiana and Mississippi) is expected to have a huge harvested acreage increase.
Table 2 shows the percent of a state’s cotton that was rated poor or very poor in mid-August 2001 and its
comparison value in 2000. Crop condition through August 6 showed Texas with 45 percent of its acreage
in very poor to poor condition. The North Carolina, Tennessee and Virginia crops are exhibiting reduced
crop conditions but are compared to rather favorable conditions last year. The USDA, NASS reported that
the remaining states rated most of their cotton acreage in a significantly improved condition in early August
as compared to last year.
Table 3 indicates the yields projected for the Southern Region states for the 2001 crop. Only North
Carolina’s yield is expected to average less than the 2000 crop but will remain above 700 pounds per acre.
Alabama, Florida and Mississippi are the states in which 2001 yields are expected to up by over 100
pounds from last year. US yield for all cotton is expected to average 670 pounds per harvested acre, up 38
pounds from last year. Upland yield is set at 661pounds per acre. Only Florida and Texas are expected to
yield less than the nation average. Beltwide yields will be 25 pounds as compared to average yields over
the last ten years.
US upland cotton production is forecast at 19.410 million bales for 2001, up 16% from 2000 (Table 4).
States that comprise the Southern Region increased market share of the US upland production at 74 percent
of the US crop.
US Cotton Supply, Use and Price Prospects
USDA currently forecasts the 2001 US crop at 20 million bales. This will be the largest crop on record and
results from both increased acreage and yield prospects. The 2001 crop is pegged at 15 percent higher than
the 90’s average crop of 17.3 million bales. This production combined with a 6 million bale carry-in
projects a U.S. supply at 25.5 million bales. This would be the largest total supply on record beating the
previous record, set in 1994, by 2.8 million bales. This is a huge crop for U.S. and world mills to absorb.
2
Table 1. Upland Cotton Area Harvested, Selected States, 2000 and 2001
State
2000
2001
--- (1,000 Acres) ---
Change
(%)
Alabama
Florida
Georgia
Louisiana
Mississippi
North Carolina
South Carolina
Tennessee
Virginia
Texas
530
106
1,350
695
1,280
925
290
565
108
4,400
605
124
1,490
900
1,680
1,055
296
605
104
4,500
14.2%
17.0%
10.4%
29.5%
31.3%
14.1%
2.1%
7.1%
-3.7%
2.3%
Total Southern Region
10,249
11,359
10.8%
Total US
12,884
14,104
9.5%
Percent Southern Region
79.6%
80.5%
Source: USDA, NASS, Crop Production, August 10, 2001
Table 2. Upland Cotton Crop Percent Poor or Very Poor Comparison, 2000 to 2001.
State
8/7
2000
8/6
2001
Difference
Alabama
Florida
Georgia
Louisiana
Mississippi
North Carolina
South Carolina
Tennessee
Texas
Virginia
41%
N/A
30%
20%
13%
3%
13%
2%
24%
0%
9%
N/A
6%
4%
8%
4%
3%
7%
45%
5%
-32%
N/A
-24%
-16%
-5%
1%
-10%
5%
21%
5%
US (14 States)
18%
23%
5%
Source: USDA, NASS, Crop Progress, August 7, 2000, and
August 6, 2001.
US mill use disappearance is projected to take only 8.3 million bales of available supplies. This is well
below the average for the 90’s and is much smaller than we’d grown accustom to in the mid-nineties. This
is assumed to reflect three factors including flat product demand, a strong US dollar, and little incentive to
buy now in a falling market. With numerous plant closings and layoffs recently, the US milling industry
appears in disarray. One could expect to see the more labor-intensive activities in the textile manufacturing
process to continue its move to cheaper labor markets such as Mexico. Hopefully, these overseas mills will
continue to value US cotton and be a source of export demand.
3
Table 3. Upland Cotton Forecasted Yield by Selected Southern Region State, 2000 and 2001
State
2000 2001
Change
(Pounds per Acre)
Alabama
Florida
Georgia
Louisiana
Mississippi
North Carolina
South Carolina
Tennessee
Texas
Virginia
492
480
591
629
642
742
627
603
430
738
682
650
680
693
743
701
681
643
469
743
190
170
89
64
101
-41
54
40
39
5
Total US
626
661
35
Source: USDA, NASS, Crop Production, August 6, 2001
Table 4. Upland Cotton Estimated Production by Southern Region State, 2000 and 2001.
State
2000
2001
(Thousand Bales)
Change
(%)
Alabama
Florida
Georgia
Louisiana
Mississippi
N. Carolina
S. Carolina
Tennessee
Texas
Virginia
543
106
1,663
911
1,731
1,429
379
710
3,940
166
860
168
2,110
1,300
2,600
1,540
420
810
4,400
161
58%
58%
27%
43%
50%
8%
11%
14%
12%
-3%
Total Southern Region
Total US
Percent Southern Region of US
11,578
16,799
72%
14,369
19,410
74%
24%
16%
Source: USDA, NASS, Crop Production, August 6, 2001
Exports are projected to be substantially higher than what has been typical for the 90’s and up significantly
from 2000. On average, we’ve come to expect exports being around 6.8 million bales. The current
forecast of 9 million bales reflects tighter global stocks and increased consumption. Projected export
market strength has been attributed to reduced price supports and a dramatic draw down of Chinese cotton
stocks as well as reduced production expected in southern hemisphere nations.
Ending stocks, at 8.7 million bales, are projected and are HUGE relative to the 90’s average of 3.85 million
bales. A stocks-to-use ratio of 50 percent is expected for the 2001 crop. This is well above the “desired”
30 percent or less implied in US farm policy.
4
It is fair to say that we have seen substantially lower cotton prices than we’ve typically seen at the market.
(December 2001 Futures are below 36 ¢ at this writing.) If export prospects falter and we return to more
typical patterns, even the huge level of stocks would be viewed as optimistic and price levels would
continue to erode for this crop.
With 2001 crop futures at 36 cents, one would expect that producers would be attempting to maximize loan
deficiency payments for this year’s crop. Two questions I’m often asked are “How can we predict the level
of loan deficiency payment (LDP) payment rates?” and “When will they be the highest?” We at Clemson
began keeping records of LDP rates available in June 1999 and have been posting and archiving them on
the web at:
http://cherokee.agecon.clemson.edu/ldp_page.htm
(Note: there is an “underscore” between the “ldp” and “page” in the above address or “ldp_page.”) From
these data Table 6 was developed. Table 6 is a monthly average basis of the Adjusted World Price (AWP)
minus the Nearby NYBoT Cotton Futures. This table allows a prediction of the AWP, which can then be
compared, to the Loan Rate of 51.92 cents/lb to calculate a predicted LDP.
For example, if one wanted a prediction of the LDP level that might prevail next January, you proceed as
follows:
1.
2.
3.
The Jan basis from Table 6 is –16.7 relative to the March futures.
At this writing, Mar ’02 futures are at 40.85 cents so the predicted AWP would be 24.15 cents.
Subtracting the predicted AWP from 51.92 Loan Rate yields a January 2002 LDP prediction of
27.77 cents per pound.
Note with global stocks tight and larger U.S. stocks, the AWP and U.S. futures converged somewhat in
2001. If this continues the above prediction method would overstate the predicted LDP rate. The basis
information in Table 6 should be view with a degree of caution because we have had only a short period of
LDP experience.
Figure 1 shows current market-based probabilities for prices out to next June. It is important to note that
the prospects of prices recovering such that there is no LDP by then is effectively nil. However, prices
recovering to a level so that a 42 ¢ July 2002 call moving in the money are near 45 percent. A strongly
suggested strategy then would be to accept the harvest market value (30¢ and LDP 27 ¢ at ginning) and
reinvest 200 to 250 points into the July ’02 call. With a 45% plus probability of gain on the option there’s a
good chance of adding to the net captured 55 ¢ for 2001 cotton. Any “excess” (over payment limit) cotton
should go to the loan.
5
Table 5. U.S. Cotton Supply and Utilization, 1999 through 2001 and 1991 to 2000 Averages.
1999
(99-00)
Estimated
2000
(00-01)
Projected
2001
(01-02)
91-00
Recent
Average
2001
Percent of
Average
14.87
13.42
15.52
13.05
16.19
14.14
14.37
12.97
113%
111%
607
632
679
645
104%
Carry In (MBls)
Production (MBls)
Total Supply (MBls)
3.94
16.97
21.00
3.92
17.19
21.13
6.03
19.99
25.56
3.52
17.33
20.99
158%
115%
122%
Mill Use (MBls)
Exports (MBls)
Total Use (MBls)
10.24
6.75
16.99
8.87
6.70
15.57
8.30
9.00
17.30
10.41
6.79
17.21
82%
133%
102%
Ending Stks (MBls)
Stks to Use (%)
3.92
23%
6.03
36%
8.70
50%
3.85
23%
211%
202%
Price ($/Lb)
0.450
0.551
n/a
0.614
n/a
Item (Units)
Planted (MA)
Harvested (MA)
Yield (Lbs/Ac)
Table 6. Monthly Average Basis of the Adjusted World Price minus the Nearby NYBoT Cotton
Futures, Crop Years 1998 through 2001.
Months
Aug
Sep
Oct
Nov
Dec
Jan
Feb
Mar
Apr
May
Jun
Jul
Futures
Contract Month
Oct
Oct
Dec
Dec
Mar
Mar
Mar
May
May
Jul
Jul
Oct
98-99
-19.56
-19.99
-21.11
-21.63
-19.28
-17.63
-17.51
-20.81
-16.26
-12.21
-11.16
-9.96
99-00
-15.13
-14.89
-19.39
-18.27
-19.31
-22.69
-17.71
-17.60
-11.33
-14.01
-9.92
-11.81
6
00-01
-15.33
-15.56
-16.21
-15.51
-12.98
-9.78
-10.71
-8.76
-7.66
-7.25
-7.07
-9.36
98 to 00
Average
-16.67
-16.81
-18.90
-18.47
-17.19
-16.70
-15.31
-15.72
-11.75
-11.16
-9.39
-10.38
Figure 1. Market-based probability estimates of July 2002 futures price by June 20, 2002
as established in the market September 21, 2001.
Cumulative Probability of
Futures Price Occurring at
Expiration
Probability That Futures Price Will
Be Less Than:
95.9%
92.2%
100%
86.3%
90%
77.3%
80%
65.0%
70%
60%
50.0%
50%
33.9%
40%
30%
19.2%
20%
8.5%
10%0.5% 2.6%
0%
$0.25
$0.31
$0.37
$0.43
$0.49
Futures Price at Option Expiration
7
$0.55