Cotton and Wool YEARBOOK December 4, 2003 November 2003, ERS-CWS-2003 Approved by the World Agricultural Outlook Board ---------------------------------------------------------------------- This TEXT is published by the Economic Research Service, U.S. Department of Agriculture, Washington, DC 20036-5831. The summary was released on November 24, 2003. The complete report will be available electronically in about a month. ---------------------------------------------------------------------- Cotton and Wool Situation and Outlook Yearbook. Market and Trade Economics Division, Economic Research Service. U.S. Department of Agriculture, November 2003, CWS-2003. CONTENTS Summary U.S. Cotton Situation and Outlook World Cotton Situation and Outlook Situation and Outlook for Other Fibers Report Coordinator Leslie Meyer (202) 694-5307 Fax (202) 694-5823 E-mail: LMEYER@ers.usda.gov Other Contributors Stephen MacDonald (202) 694-5305 Robert Skinner (202) 694-5313 Wilma Davis (202) 694-5304 (Statistics) Editor Martha R. Evans Layout and Design Wynnice Pointer-Napper Summary World cotton stocks in 2003/04 (August/July marketing year) are forecast at only 31.7 million bales, more than 5 million bales below a year earlier and the lowest level since 1994/95. The significant decline from 1998/99’s record of 48.1 million bales has been attributable to global demand outpacing world production during four of the last five seasons. Foreign cotton stocks are also expected to be the lowest since 1994/95 with the largest reduction occurring in China. Stocks in the United States are likewise expected to decline from last season but are only the lowest in 4 years. Global cotton production in 2003/04 is projected at 92.1 million bales, nearly 5-percent above last season. Production is estimated higher in most major-producing countries this season, with the largest increases expected in India (1.9 million bales higher), Brazil (1.1 million), and the United States (1 million). In contrast, 2003/04 cotton production in China--the world’s largest producer--is forecast 600,000 bales lower than a year ago as unfavorable weather reduced the crop from earlier expectations. Foreign cotton production in 2003/04 is forecast about 4.5 percent above last season at 73.9 million bales. World cotton consumption is projected at 97.7 million bales in 2003/04, slightly below last season’s record. However, foreign consumption is expected to be a record 91.5 million bales, as U.S. mill use continues to move overseas. Among foreign consumers, small changes are anticipated in 2003/04 with the exception of China, where mill consumption is forecast to rise 700,000 bales to 30.2 million-- almost one-third of the world’s cotton consumption. As a result of increased foreign consumption, global trade in raw cotton is expected to increase more than 5 percent in 2003/04 to 32.3 million bales, the highest since 1988/89. Foreign cotton exports are projected to rise 2 percent from 2002/03 to 19.1 million bales, or 59 percent of world trade in 2003/04. The United States is expected to account for the remainder, as exportable supplies have expanded with the considerable reduction in the domestic industry over the past several years. U.S. cotton production in 2003/04 is forecast at 18.2 million bales, nearly 6 percent above last season but well below the 2001/02 record of 20.3 million bales. This season's cotton output is based on smaller area but a record national yield. U.S. cotton planted area declined 2 percent from 2002 to 13.6 million acres this season, the lowest in 5 years. Generally favorable conditions throughout most of the growing season permitted a better-than-average U.S. cotton crop. Inclement weather delayed planting, particularly in the eastern half of the Cotton Belt and in California, but crop development, and subsequently harvest, progressed normally albeit behind the typical pace. Abandonment, expected near 11 percent this year, is similar to 2002/03, while harvested cotton area, estimated at 12.1 million acres, is 300,000 acres below last season and the lowest since 1998/99. However, the national yield is projected at a record 722 pounds per harvested acre. U.S. cotton exports in 2003/04 are projected to reach a record for the second consecutive season. Exports are forecast at 13.2 million bales, up from 11.9 million in 2002/03. Large U.S. supplies of exportable cotton remain this season despite total supplies being 1 million bales below 2002/03. In addition, projections of record foreign consumption are expected to benefit U.S. exports and push world trade higher. With prospects for world cotton exports rising modestly in 2003/04, the U.S. share of global trade is expected to surpass 40 percent, slightly above last season. In contrast, U.S. cotton mill consumption is forecast at only 6.2 million bales in 2003/04, 1.1 million below the previous season and the lowest since 1984/85. The dramatic growth of U.S. cotton textile and apparel imports, which have doubled since 1996, has forced the U.S. textile manufacturing industry to reduce significantly its capacity. To remain competitive, U.S. textile and apparel processors have focused on core products and niche markets. U.S. cotton stocks at the beginning of 2003/04 were estimated at 5.4 million bales. Despite a higher crop forecast this season, total U.S. cotton supply in 2003/04 is projected 4 percent lower at 23.7 million bales. Meanwhile, U.S. cotton demand is forecast to exceed production for the second consecutive season with total demand projected at 19.4 million bales, slightly above 2002/03. As a result, based on these supply and demand estimates, U.S. ending stocks for 2003/04 are estimated to continue their decline, decreasing to 4.3 million bales and the lowest in four seasons. U.S. Cotton Situation and Outlook U.S. Cotton Review, 2002/03 The 2002/03 (August/July) marketing year began with U.S. cotton stocks estimated at 7.4 million bales, 1.4 million above the previous season. The 2002 cotton crop was the first planted under the Farm Security and Rural Investment (FSRI) Act, which continued the market-oriented planting flexibility provided producers in previous legislation and institutionalized an improved safety net through the counter-cyclical income stabilization program. In addition, under the 2002 farm act, farm owners and operators had a one-time opportunity to update base acreage for both direct and counter-cyclical payment calculations. Farm yields for the new counter-cyclical program could also be updated to reflect recent history. In 2002, the planting flexibility allowed acreage to shift into alternative crops as relative net returns at planting time favored competing crops over cotton. In the United States, 2002 cotton area decreased to 14 million acres, 11 percent below the 15.8 million planted in 2001. The national abandonment rate fell from about 12 percent in 2001 to 11 percent, resulting in 2002 total cotton harvested area of 12.4 million acres, 10 percent below the previous year. Although larger than average area losses occurred in the eastern half of the Cotton Belt due to inclement weather conditions, smaller than average losses in the western half kept harvested area from falling further. While the lower-yielding Southwest continued to contribute the largest acreage abandonment in 2002, the other regions combined accounted for an unusually high 25 percent of abandoned area. As a result, the U.S. yield averaged 665 pounds per harvested acre, 40 pounds below 2001. With the lower yield and smaller harvested area, 2002 U.S. cotton production totaled only 17.2 million bales, a decline of 15 percent (3.1 million bales) from the previous year. In 2002/03, total U.S. cotton demand expanded to 19.2 million bales, nearly 500,000 bales above 2001/02 and the highest demand for U.S. cotton since 1994/95. While U.S. cotton mill use declined for the fifth consecutive season, raw cotton exports increased to a record. In 2002/03, U.S. cotton exports reached 11.9 million bales, only 8 percent above the previous season but significantly above the previous 5-year average of 7.3 million bales. With record foreign mill use in 2002/03 and the smallest foreign crop in 3 years, foreign import demand expanded to its largest since 1989/90 and helped push U.S. exports to its record level. With world cotton trade increasing to 30.6 million bales, the 2002/03 U.S. share of global trade expanded from 38 percent in 2001/02 to 39 percent. In contrast, U.S. cotton mill consumption declined again in 2002/03 to about 7.3 million bales from 7.7 million the year before. In 2002/03, U.S. mill use was the lowest since 1985/86 when mill use was only 6.4 million bales. Mill use continued to deteriorate due to mills’ difficulty competing with cotton textile and apparel imports, especially since 1997/98. During this period, the strength of the U.S. dollar has encouraged imports and hampered U.S. cotton textile exports abroad. These factors have forced textile and apparel manufacturers to continue to reduce their capacity and output dramatically. With U.S. cotton supply declining to 24.7 million bales in 2002/03 and total demand rising to 19.2 million, stocks at the end of last season fell nearly 28 percent. Ending stocks were placed at 5.4 million bales, a decrease of nearly 2.1 million bales during the season. As a result, a stocks-to-use ratio of approximately 28 percent in 2002/03 was the lowest in 3 years. With record world cotton demand and both U.S. and foreign crops declining, the average upland price received by producers improved from 29.8 cents per pound in 2001/02 to 44.5 cents. The extra-long staple (ELS) price also increased but only slightly, rising from 2001/02's 85.6 cents per pound to average 86 cents in 2002/03. Supply Outlook for 2003/04 As planting time for the 2003 crop approached, U.S. cotton futures prices had risen significantly from the low levels seen the previous year. Although futures prices for competing crops--like corn and soybeans--had also risen, cotton had become more attractive than other alternatives. In fact, farmers’ planting intentions indicated that cotton area would rise 2 percent in 2003. However, unfavorable springtime weather forced some producers to plant less than they had intended. As a result, only 13.6 million acres of cotton were planted this season, 2 percent below 2002 and well below the 5-year average of 14.7 million acres (table A). Upland cotton area this season is estimated at nearly 13.5 million acres, compared with 13.7 million in 2002. Upland area declined generally in the eastern half of the Cotton Belt, while slight gains were seen in the western half. Likewise, ELS cotton area decreased to 180,000 acres in 2003, compared with 243,900 acres a year earlier. The decline in ELS acreage was largely attributable to California, where 60,000 acres moved out of ELS production this season. With the decrease in total cotton planted area this season, harvested area declined similarly. The abandonment rate based on the November estimate of 11 percent--1.5 million acres--was identical to last season’s. As a result, U.S. cotton harvested area, estimated at 11.9 million acres, is the second lowest in the past 10 years. Despite below average U.S. crop conditions early in the season, favorable growing conditions after June helped boost the crop significantly. U.S. crop conditions moved above the 5-year average in July and generally tracked the favorable 2002 conditions throughout the remainder of the season. Based on November 1st conditions, the 2003 U.S. cotton crop was estimated at 18.2 million bales, 1 million or 6 percent above last season’s crop. Compared with 2002, this season’s larger crop is based on fewer harvested acres but a record yield. The U.S. average cotton yield is currently projected at 722 pounds per harvested acre, 57 pounds higher than last season and above the previous record of 708 pounds set in 1994 (fig.1). Upland production is projected at nearly 17.8 million bales in 2003, with an average yield forecast at 715 pounds per harvested acre. On a regional basis, forecast production is larger in three of the four regions of the Cotton Belt this season. In the Southeast, a 250-plus pound improvement in yield in 2003 has pushed output to nearly 4.7 million bales, the second largest since 1937. In the Delta, a record yield estimate of 879 pounds per harvested acre provided an upland crop of 6.4 million bales, 900,000 bales above the 5-year average. In contrast, the Southwest region could not duplicate the record yield experienced in 2002 that produced the largest crop in 5 years. Current estimates place output at the 5-year average of nearly 4.6 million bales, as both yield and harvested area are lower than in 2002. In the West, the upland crop is estimated at about 2.2 million bales this season, slightly above a year ago. Despite a less than ideal start-- particularly in California--excellent growing conditions during the remainder of the season kept yields from falling significantly. Upland yields in the region are projected at 1,303 pounds, approximately 100 pounds below the 2002 record. ELS production is forecast at 442,000 bales in 2003, 35 percent below the 2002 crop and the smallest in 3 years. Reduced area and yield this season produced one of the smaller crops during the past 8 years. The national ELS yield is projected at 1,260 pounds per harvested acre, 82 pounds below the 2002 record. California continues to dominate ELS production, accounting for about 85 percent of the area and output. U.S. cotton stocks on August 1, 2003, were estimated at 5.4 million bales, 2 million below the stock estimate at the beginning of 2002/03. And like the past three seasons, only a small volume of raw cotton imports are expected to enter the United States this season, as ample supplies from this season’s large production and recent declines in mill use limit the need for foreign supplies. As a result, total U.S. cotton supply in 2003/04 is projected at 23.7 million bales, 1 million below last season but still one of the largest supplies in the last 35 years. Demand Outlook for 2003/04 The U.S. cotton demand outlook for 2003/04 is projected to improve slightly from a year earlier. This season’s total use is forecast at 19.4 million bales, up from nearly 19.2 million in 2002/03 and the second largest recorded demand for U.S. cotton behind 1994/95’s 20.6 million bales. U.S. exports are expected to contribute the larger share--68 percent--of total U.S. cotton demand for the third consecutive season. U.S. cotton exports are forecast at 13.2 million bales, 11 percent above the previous record set last season. Large U.S. supplies of exportable cotton are available this season despite total supplies being 1 million bales below 2002/03. With foreign stocks declining, projections of a record foreign consumption are expected to push world trade higher. And, as U.S. mill use is reduced once again this season, U.S. exports are expected to rise with the increased foreign demand that has boosted prices this season (table B). Upland cotton shipments in 2003/04 are projected to approach 12.7 million bales, 12.5 percent above the previous season, while ELS exports are expected to reach only 525,000 bales, 17 percent below last season’s record. With prospects for world trade rising over 5 percent in 2003/04 and U.S. exports projected at a historical high, the U.S. share of global trade is expected to reach 41 percent, 2 percentage points higher than last season and well above the historical average (fig. 2). Based on U.S. Export Sales data through mid-November, U.S. cotton export commitments (shipments plus outstanding sales) for 2003/04 totaled 7.7 million 480-pound bales, exceeding the 5.7 million reported a year earlier. Upland cotton shipments to date have reached 2.1 million bales, compared with 1.9 million in 2002/03. While shipments are similar, this season’s upland outstanding sales are much higher, with 5.3 million bales reported as of mid-November compared with 3.5 million during the comparable period last season. In contrast, combined ELS shipments and outstanding sales were similar to the year-earlier level; as of mid-November, ELS commitments were 5 percent higher at approximately 285,000 bales, or about 54 percent of the current ELS export forecast. U.S. cotton mill consumption is forecast to reach only 6.2 million bales in 2003/04, nearly 1.1 million bales below last season and the sixth consecutive year of decline. The current projection is more than 5 million bales below the recent high seen in 1997/98 as growth of U.S. cotton textile and apparel imports has continued to burden the U.S. industry and forced adjustments. However, restructuring of the U.S. textile and apparel industry began nearly two decades ago. First, the U.S. apparel industry--faced with rising labor costs--began moving offshore as labor-intensive apparel items were finished and exported back to the United States. The Caribbean Basin Initiative and later the North American Free Trade Agreement buoyed the U.S. textile industry for a period as products containing U.S. components received preferential treatment. However, trade liberalization, along with the Asian financial crisis and the strength of the dollar, that began during the mid-1990s diminished these benefits and provided increased import competition that required U.S. mills to reduce capacity and further modernize or exit the industry as their customers moved overseas. Also, China’s accession to the WTO in 2001 provided additional access to the U.S. market, as China received full-member benefits immediately. As a result, U.S. cotton textile and apparel imports have continued to grow, forcing the remaining industry participants to reduce capacity and output further. Consequently, the mills’ share of total U.S. cotton demand has fallen dramatically over the last decade, plummeting from 71 percent in 1998/99 to an estimated 32 percent in 2003/04 (fig. 3). To remain competitive, many U.S. textile and apparel processors have continued to focus on core products and niche markets that are not price driven. In 2003/04, upland mill use is forecast at 6.1 million bales, the lowest in 19 years, while ELS consumption is projected at 90,000 bales, the lowest in 9 years. Based on the first 3 months of data from the Department of Commerce, the seasonally adjusted annual rate of cotton consumption averaged approximately 6.2 million bales, equal to the current forecast. Actual cotton mill use for August through October 2003 totaled 1.64 million bales, compared with 2.0 million a year earlier. Like cotton, manmade fiber mill use has also decreased during the first 3 months of 2003/04. Consequently, cotton’s share of fiber consumption on the cotton system remains near the year-earlier level and the 2002/03 average of 81.3 percent. Based on these U.S. cotton supply and demand projections, ending stocks for the 2003/04 marketing year are estimated to decline to approximately 4.3 million bales, 21 percent or 1.1 million bales below the beginning level (fig. 4). The decline is attributable to higher demand and lower supply than last season, despite this season’s boost in production. Ending stocks for 2003/04 are forecast at the lowest in 4 years. As a result, the U.S. stocks-to-use ratio is expected to decrease once again from 28 percent in 2002/03 to 22 percent this season. Upland stocks are estimated at 4.1 million bales, while ELS stocks are projected at 102,000 bales, the lowest in 6 years. U.S. Textile Trade and Domestic Consumption The overall volume of U.S. textile trade in calendar 2003 is expected to expand (based on preliminary data) from last year. The trend of increasing U.S. textile trade is likely to continue in 2003 as the liberalization of world textile and apparel trade continues. As a result, the U.S. textile trade deficit will increase once again, as imports have risen modestly so far this year while exports remain near the 2002 level. In calendar 2002, the textile trade deficit for all fibers reached a record of nearly 10.5 billion (raw-fiber-equivalent) pounds, 20 percent above 2001. U.S. textile and apparel imports during the first 9 months of 2003 approached 12.7 billion pounds, 11 percent above the comparable period in 2002. However, textile exports through September 2003 have remained near those of a year ago, reaching 3.6 billion pounds. The strength of the U.S. dollar has kept exports relatively more expensive to foreign customers and imports less expensive to U.S. consumers. As a result, the textile trade deficit for all fibers during the first 9 months of 2003 reached 9 billion pounds, 17 percent above the same period in 2002. U.S. cotton textile imports have followed a similar pattern so far in 2003, while exports have also risen during the first 9 months. Cotton textile imports totaled 7 billion pounds through September 2003, 11 percent above a year earlier. Meanwhile, cotton textile exports had risen to 1.8 billion pounds, 7 percent higher than the corresponding period of 2002. For calendar 2003, U.S. cotton textile and apparel imports are expected to rise for the 15th consecutive year, with exports continuing to improve also after the 2001 decline that was associated with the U.S. recession. Imports for the year will likely exceed the equivalent of 19.5 million bales (9.4 billion pounds) of raw cotton, about 10 percent higher than in 2002. On the other hand, U.S. cotton textile and apparel exports are likely to approach the 5-million-bale level (2.4 billion pounds), slightly below the 2000 level. With imports increasing more than exports, the U.S. cotton textile trade deficit is expected to climb higher in 2003 to the equivalent of nearly 14.6 million bales of raw cotton (fig. 5). Imported textile and apparel products continue to displace U.S. mill use of all fibers. In 2003, total U.S. fiber mill use is expected to fall to approximately 13 billion pounds, the sixth consecutive annual decline and the lowest since 1988. Based on data for the first 9 months of 2003, U.S. mill use of each fiber type is expected to decrease from 2002, with cotton mill use declining for the sixth consecutive year to about 3.2 billion pounds, the lowest since 1986. As a result, cotton’s share of U.S. fiber mill use continues to erode and will likely decline from around 26 percent in 2002 to about 25 percent in 2003, while manmade fibers account for close to 74 percent of U.S. fiber mill use (appendix table 25). In contrast, 2003 total domestic consumption (mill use plus net textile trade) of cotton is expected to rise slightly above last year as imported products continue to provide a larger share of domestic consumption. Based on data for the first 9 months of 2003, domestic consumption totaled 7.8 billion pounds, compared with 7.5 billion during the comparable period in 2002. By year’s end, cotton domestic consumption is likely to reach a record 10.2 billion pounds, 2 percent above 2002 (fig. 6). Based on these estimates, the U.S. per capita cotton consumption would rise to approximately 35 pounds, slightly above last year and similar to the 2000 level. However, less than one- third of this total is expected to be spun in U.S. mills in 2003, compared with two-thirds just a decade ago. World Cotton Situation and Outlook World Prices Recover in 2003 As the 2003/04 Northern Hemisphere harvest drew to a close, world prices rebounded, returning to and then exceeding long-run average levels for the first time in years. While prices began recovering in 2002/03, only in the fall of 2003 did cotton prices achieve the recovery seen for other field crops the year before. As the impact of unfavorable weather in China became clear and the likelihood developed that China’s imports would exceed previous records by millions of bales, the A-Index finally reached above-average levels. Prices rose as the prospect of a second year of global stock drawdown finally offset the imbalances that developed in 2001/02 (table C). In 2002/03, world production fell by its largest amount in a decade. Production fell in virtually every major cotton-producing country and region in response to the previous year’s extraordinary decline in prices. In 2001/02, the A-Index fell 28 percent in inflation-adjusted terms, its largest decline since 1985/86 when the United States stopped supporting world prices through its loan program. Compared with the year before, world cotton production in 2002/03 fell 11 percent, or 10.5 million bales. The largest decline occurred in the United States, where production fell by 3 million bales, but China’s output fell by nearly 2 million bales and India’s by only slightly less. Among the major cotton producers, only Brazil and Turkey saw slight increases in their 2002/03 crops compared with the previous year. Stocks Decline Dramatically in 2002/03 In contrast with production, world consumption rose in 2002/03 from the year before. World consumption’s 3.8 percent increase was the second largest increase since 1986/87. While the previous year’s decline in world prices accounted for some of this increase--just as it did in 1986/87--consumption is much more strongly linked to world economic activity than is production (fig. 7). World gross domestic product (GDP) growth in 2003 was 3 percent, its strongest since 1999. However, outside of China, consumption was stagnant or falling for the textile industries of most countries. U.S. consumption fell 400,000 bales from the year before in 2002/03 and Brazil’s fell 350,000 bales. Consumption in India, Southeast Asia, and East Asia was stagnant. Turkey’s consumption rose slightly, and Pakistan’s rose 700,000 bales, or 8 percent. However, China accounted for much of the world’s 3.6- million-bale increase in consumption in 2002/03. China’s consumption rose 3.3 million bales and China accounted for 30 percent of the world’s mill use of cotton. Since 1980, China’s share of world cotton consumption has fluctuated between 22 and 25 percent (fig. 8). However, in 1999, China’s cotton consumption began surging while the rest of the world grew only slightly. China’s share of world cotton use rose for the fifth consecutive year in 2002/03 as China’s share of world textile and apparel exports rose and domestic demand for textiles in China increased. With production lower and consumption higher than the year before in 2002/03, world ending stocks staged a dramatic decline. Led by a 4.5- million-bale decline in China’s ending stocks, world ending stocks fell 10 million bales from year-earlier levels. As a result, stocks as a share of world consumption fell from an unusually high 50 percent to a below-average 37 percent. This was the largest decline in world ending stocks since 1986/87. Excluding China from the ending stock and consumption numbers, and adding China’s net imports onto world consumption gives an alternative stocks/use measure that provides a better perspective on the impact of world stocks on prices. By this measure, stocks were 50 percent of use in 2001/02, but in 2002/03 fell to 40 percent. During the 1990s, stocks averaged 35 percent of use by this measure. With stocks lower but still above average, prices rose in 2002/03 compared with a year earlier, but remained below average. Higher 2002/03 Prices Drive 2003/04 Production Up In inflation-adjusted terms, the A-Index rose 29 percent from the year before in 2002/03, one of the largest annual increases of the last 40 years. The correlation between price changes in one year and changes in world production in the following year is strong, and not surprisingly, world production rose, but only by 4.7 percent (fig. 9). Typically, when the real A-Index has risen between 10 and 20 percent world cotton production grows at least 10 percent in the following year. By comparison, in 2000/01 the real A-Index rose 7 percent and in 2001/02 world production rose 11 percent. Changes in competing crop prices account for some of this disparity, but weather difficulties in a number of producing countries during 2003/04 account for a larger proportion of the shortfall. In contrast, 2001/02 production was boosted by unusually good weather around the world. While U.S. yields were unusually high in 2003/04 and India’s favorable monsoon raised area and yields there, extraordinarily high precipitation in Eastern China reduced yields dramatically in the world’s largest producing country. Similarly, a continuation of Australia’s drought has constrained the ability of one of the world’s largest exporters to respond to higher prices, limiting world production capacity by perhaps another 2 million bales. Uzbekistan’s crop was reduced after enduring perhaps the coldest spring ever, and Pakistan’s crop grew only slightly as insect pressure reduced yields. With prices rising both in 2002/03 and early in 2003/04, world consumption of cotton is expected to decline for the first time since the Asian Financial Crisis. World consumption is expected to decline by 0.5 percent despite continued acceleration in world GDP growth from 3.2 percent to 4.1 percent. China’s stocks/use is expected to fall to only 22 percent in 2003/04 after spending 8 years in a range between 45 and 119 percent. Despite the recent surge in cotton prices within China to $1 per pound, cotton consumption is still expected to grow from the year before in 2003/04. Investment in textile production has been strong in recent years and the impact of higher prices is expected to be a substantially slower rate of growth rather than a decline in consumption. Similarly, Pakistan is expected to increase its cotton consumption, as is Bangladesh, India, and Brazil. The biggest decline foreseen in consumption is in the United States, where mill use is expected to be more than 1 million bales lower than in 2002/03. China’s share of world consumption is expected to increase to 31 percent in 2003/04, while the U.S. share is expected to fall to about 6 percent. In 1997/98 their respective shares were 22 and 13 percent. During this time, China’s mill use is estimated to have increased by 11 million bales (nearly 60 percent) and U.S. use declined by 5.1 million bales (45 percent). Ending Stocks Lowest Since 1995/96 Despite higher production and reduced consumption, lower ending stocks are foreseen for 2003/04 than in 2002/03 as lower beginning stocks reduce available supplies. While the likely reduction in ending stocks is substantially smaller than the decline that occurred in 2002/03, the impact on prices through November 2003 has been comparable with the previous year’s gain due to low levels of stocks. With a 5- million-bale decline from the year before, ending stocks are expected to fall to 32 percent of global consumption. This would be their lowest share of consumption since 1993/94. Excluding China from the ending stock and consumption numbers, and adding China’s net imports onto world consumption, ending stocks are expected to be 33 percent of use in 2003/04, the lowest since 1995/96. China’s forecast decline in stocks is the largest of any country, although at 1.3 million bales this would be its smallest stock decline in 5 years. China’s Government has been reducing stocks through auctions of the pre-1999 cotton that was stockpiled when China’s procurement prices exceeded world prices. In some years it appeared China’s trade policy restricted imports, facilitating a less costly stock disposal. In 2002/03, China’s imports rose substantially, but the government also auctioned 4.9 million bales of cotton. In 2003/04 it appears the old-crop auctions will no longer be a significant source of cotton, and, following the loss of millions of bales of cotton to excessive rainfall, China is expected to import an unprecedented 7 million bales. With world stocks outside of China expected to be at their lowest in years, and China switching from years of drawing down stocks to a period of wider openness to imports, world prices soared 27 percent during the first 4 months of the 2003/04 marketing year. Factors Driving Prices Shift Over Time Prices for cotton and a number of other agricultural commodities declined during the second half of the 1990s. The strengthening U.S. dollar accounted for some of this decline and, in the case of grains and cotton, China’s shift in net trade away from importing was another major factor. As the new decade began, cotton prices were particularly affected by a slowing world economy, a surge in the value of the U.S. dollar, and unusually favorable weather for cotton production around the world in 2001/02. During 2002/03 these factors began swinging back in favor of higher cotton prices. According to the International Monetary Fund (IMF), world economic growth rose to 3 percent in 2002 and by 2004 is expected to reach 4.1 percent. IMF data also indicate that the inflation-adjusted U.S. exchange rate declined significantly in 2003 for the first time since 1995. Preliminary data suggest that this decline was the largest since 1987 (fig. 10). During the last 3 months of marketing year 2002/03, China’s cotton imports significantly exceeded the amount auctioned from government stocks for the first time since the auctions began in 1999. At the end of October 2003 the government suspended the auctions, which may have marked the end of the government’s 4-year stock disposal program that released 16 million bales of cotton from government stocks. This, combined with the weather shock suffered by China’s cotton output opened the way for China once again to turn to world markets for an unprecedented level of cotton imports. With this change, the last of the confluence of factors that drove world prices down to unprecedented levels a few years ago was reversed and the price of cotton recovered. What is always uncertain is the future direction of these factors and in turn the future direction of prices. Foreign ELS Production and Consumption Lower According to the International Cotton Advisory Committee (ICAC), ELS output in foreign-producing countries is expected to decline in 2003/04 as lower production in Egypt and Central Asia offsets gains elsewhere. Egypt is expected to produce one of its lowest crops in years, while production in Central Asia remains above levels seen during the second half of the 1990s. Foreign production is expected to fall 13 percent to 2.2 million bales. Egypt is expected to produce 462,000 bales less than in 2002/03 as farmers switch to cotton and rice production. Lower production in Egypt is also expected to lead to lower consumption and ending stocks in total for the foreign ELS- producing countries in 2003/04 (table D). Egypt accounts for most of the expected decline in ELS consumption in foreign-producing countries. ELS consumption in Egypt is expected to fall 225,000 bales, while total consumption in foreign-producing countries is expected to fall 181,000 bales to 1.6 million. India and China are both expected to consume slightly more ELS cotton in 2003/04. In China’s case, consumption of ELS is expected to reach a record high, while India’s consumption remains below levels seen early in the 1990s and before. However, with Egypt’s decline in consumption, India is now the largest consumer of ELS cotton among the producing countries. Foreign exports of ELS cotton are expected to be about unchanged in 2003/04 compared with the year before, at 1.4 million bales. Egypt’s exports are expected to fall substantially, down 206,000 bales, but Egypt is expected to remain the world’s largest exporter. Substantially larger exports are foreseen from China and Sudan, offsetting the decline in Egyptian shipments. ELS ending stocks in foreign-producing countries are expected to be relatively low in 2003/04. With Egypt’s ending stocks falling 274,000 bales, total ending stocks in foreign-producing countries are expected to be down 406,000 bales, to 743,000. Lower ending stocks are also expected in China, Sudan, and Central Asia. Situation and Outlook for Other Fibers U.S. Wool Production and Mill Use Lower U.S. sheep numbers and wool production declined in 2002 for the 13th consecutive year. The U.S. farm price for shorn wool averaged $0.53 per pound, greasy, in 2002, 47 percent above a year earlier. Sheep numbers on January 1, 2003, were 4.7 million head, 5 percent below January 2002 and 51 percent below 1990. Wool production is estimated at 21.7 million pounds, clean (41.2 million, greasy) for the 2002 marketing year (table E). During 2002, U.S. raw wool imports totaled 24.6 million pounds, clean, 31 percent below a year earlier (table F). During 2002, imports of fine wool represented 38 percent of total shipments. Imports of unimproved or other grades not-finer-than 46’s totaled 14.1 million pounds. Shipments from New Zealand represented 72 percent of these coarser grades, while Australia accounted for 77 percent of the finer wools last year. With beginning stocks of 54.3 million pounds, total 2002 supplies were 121 million pounds, clean, 12 percent above a year earlier. Raw wool mill consumption in 2002 totaled 42.9 million pounds, 35 percent below 2001 and less than 60 percent of the level reached just 4 years ago. Apparel wool consumption, at 36 million pounds, was 32 percent below a year earlier, while carpet mill use was 6.9 million pounds, 6.4 million below 2001 (table G). In 2002, the woolen system used 18.1 million pounds and the worsted system used 17.9 million. Raw wool exports during 2002 were 8.5 million pounds, clean, compared with 6.2 million a year earlier. Shorn wool shipments were 7.3 million pounds and not-shorn (pulled) exports were 1.0 million. Carbonized wool exports totaled 141,815 pounds, compared with 1.2 million in 2001. The majority of shorn wool exports went to Germany, China, Mexico, and Belgium. The majority of non-shorn wool went to Canada. U.S. prices for clean, mill-delivered territory raw wool increased sharply compared with the previous year. Finer grades 64’s and 62’s averaged $1.90 and $1.74 per pound, respectively, while the 60’s and 58’s averaged $1.41 and $1.40 per pound, respectively. Prices of fine grades were about 70 cents above a year earlier, while the prices of coarse grades were up 50 cents. Domestic prices of Australian raw wool of all grades were sharply higher in 2002 compared with a year earlier. Prices for Australia’s finest wool, the 80’s, averaged $2.87 per pound in 2002, 19 percent above 2001, and the 64/70’s rose to $2.70 per pound, up 60 percent from last year. For the coarser grades, prices increased over $1.00 per pound compared with a year earlier. The 60/62’s averaged $2.63 per pound and the 58/56’s averaged $2.55 per pound during 2002. Lower sheep numbers in 2003 imply that wool production could decline further. While the number of sheep declined 5 percent from last year, the number of sheep shorn dropped by only 4 percent. Increasing wool prices throughout the year were likely responsible for the smaller decline in the number of sheep shorn. Stronger prices in 2003 and the continuation of the wool price support program may limit further production declines (fig. 11). During 2003, wool prices increased through March and April and then weakened slightly over the remainder of the year. The finer grades, 64’s and 62’s, rose to $2.60 and $2.40 per pound, respectively, in March and then declined to $2.31 and $2.13 per pound, respectively, by November. The coarser grades experienced a similar trend, with the 58’s and 56’s averaging $1.70 and $1.45 per pound, respectively, in November. Prices of both fine and coarse grades were near the same level as a year ago. Domestic prices of Australian raw wool have declined about $0.40 per pound compared with November 2002. The trends that have characterized the U.S. wool industry, dwindling sheep numbers, declining production, and falling consumption, are also occurring worldwide (table H). U.S. wool consumption continues to decline in 2003. During the first 6 months, consumption on the woolen system and carpet wool, at 9.6 million pounds, is down 34 percent from a year earlier. Wool consumption from worsted combing operations is no longer available on a quarterly basis. Noncellulosic Fiber Industry Slows in 2003 The U.S. noncellulosic fiber industry declined in the first half of 2003 (the latest data available) when compared with the same 2002 period. Total shipments during the first two quarters of 2003, at 5.77 billion pounds, were 3.2 percent below the similar 2002 period. In contrast, total shipments during calendar 2002, at 11.6 billion pounds, were 0.5 percent above the previous year. Meanwhile, noncellulosic stocks at fiber producers’ plants were 0.55 billion pounds at the end of September 2003, 0.5 percent above a year earlier. Stocks at the end of 2002, 0.59 billion pounds, were 3.2 percent above the 2001 level. Total noncellulosic fiber production during January-June 2003, at 4.2 billion pounds, was 4.9 percent less than a year earlier (appendix table 42). The annual 2002 production, 8.68 billion pounds, was 3.2 percent more than in 2001. Meanwhile, noncellulosic fiber plants operated at 81 percent of capacity during 2002, up from 74 percent in 2001. However, utilization rates during the first and second quarters of 2003 were only 76 and 75 percent, respectively. In addition, the noncellulosic fiber production capacity in 2004 is estimated at 11.1 billion pounds, 0.3 percent above 2003. Domestic shipments of noncellulosic fibers during January-June 2003 were 4.11 billion pounds, 4.7 percent below a year earlier. Domestic shipments for calendar 2002 were 8.39 billion pounds, 0.4 percent above 2001. Filament fiber domestic shipments during the first 6 months of 2003 totaled 2.47 billion pounds, 4.2 percent below a year earlier. Filament fiber domestic shipments in 2002, at 5.0 billion pounds, were 3.8 percent less than in 2001. Filament fiber domestic shipments have been dominated by olefin fibers constituting about 44 percent since 2001; nylon accounted for about one-third of these shipments while polyester contributed about 23 percent. Noncellulosic staple domestic shipments during the first half of 2003 totaled 1.64 billion pounds, 8 percent below a year earlier. Staple fiber domestic shipments in 2002, at 3.44 billion pounds, were 1.4 percent above 2001. Staple fiber domestic shipments in the first half of 2003 and in 2002 averaged 53 percent polyester, down from an average of 56 percent during 1999-2001. Nylon staple shipments during 1999-2002 averaged 18 percent but averaged 20 percent during January- June 2003. Olefin staple averaged 20 percent during 1999-2002 and the first half of 2003. Acrylic staple shipments averaged 6 percent during 1999-2001 and 7 percent in 2002 and the first half of 2003. The carpet facing and backing market continues to consume more fibers than any other fiber market (appendix table 43). During the first half of 2003, the carpet market used 1.90 billion pounds, 46 percent of total noncellulosic domestic shipments, and 4.8 percent below last year. During 2002, the carpet facing and backing market consumed 3.81 billion pounds, 3.5 percent above 2001. Nylon dominated this market, taking 50 percent. Nylon staple carpet facing uses accounted for 95 percent of total nylon staple uses and 17-20 percent of all staple uses. Nylon filament carpet fibers averaged 77-80 percent of total nylon filament uses and 28 percent of all filament uses. The use of olefin in carpet facing and backing during the first half of 2003 was 0.74 million pounds, 7.5 percent less than a year ago. Olefin fibers constituted 40 percent of the carpeting facing and backing fibers. Carpeting was the most important use of olefins at 53 percent. Woven textile domestic shipments remained the second largest outlet for noncellulosic fibers, taking 19 percent or 0.76 million pounds in the first half of 2003, 3.3 percent below a year earlier. The woven textile market consumed 1.55 million pounds (18 percent) of all noncellulosic fibers during 2002, 5.6 percent below 2001. Two fibers make up almost 90 percent of this market: polyester, accounted for 64 percent while olefin, contributed 26 percent. The knit market used 0.36 million pounds during January-June 2003, 4 percent less than a year earlier. In 2002 this market consumed 0.73 million pounds, 6.3 percent below 2001. Three fibers dominate the knit market: polyester, at 65 percent; nylon, at 16 percent; and acrylic, at 18 percent.