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Analysts Optimistic in 2004 As 2003 U.S. Cotton Harvest Nears Completion

By Lynette Cockerell

USDA‘s December supply/demand report did little to impress the cotton market as the end of the 2003-crop harvest neared. According to one analyst, industry observers normally take USDA’s December supply/demand report “with a grain of salt” because it often differs considerably from the final report for the year.

In fact, the department’s December projection typically overstates final output by 200,000 bales, according to a reliability report. During the past 21 years, the December forecast has been as many as 500,000 bales below to 400,000 bales above the final report. In 10 of the 21 years, final production has been higher, and it has been lower in the other 11 years.

The monthly cotton supply/demand figures were seen as neutral to mixed by most analysts. Actually, the department’s December forecast of U.S. cotton production in 2003 remained unchanged from the previous month at 18.2 million bales despite production changes in four states. The country’s prospective area for harvest and yield remained unchanged at 12.1 million acres and 722 pounds per acre, respectively.

Output in the Texas/Oklahoma region dropped by 10,000 bales as a result of a 29-pound decline in Oklahoma’s average per acre yield. Oklahoma producers now are expected to produce only 190,000 bales. Somewhat surprisingly, Texas remained unchanged at 4.2 million bales, although private forecasts put the state as many as 100,000 bales higher than USDA. The Texas High Plains crop was pegged at 2.1 million bales while growers on the Rolling Plains are expected to harvest 550,000 bales.

USDA made no adjustments to prospective exports or domestic mill use which were estimated in November at 13.2 million and 6.2 million bales, respectively. Carryover stocks remained at 4.2 million bales.

Meanwhile, minor adjustments were made to world figures which also received mixed reviews by analysts. World consumption was reduced slightly to 97.1 million bales from November’s figure of 97.7 million, and world production was seen slightly higher at 92.2 million bales. In addition, world ending stocks were increased slightly to 32.2 million bales from the 31.7 million bale estimate in November.

As the cotton harvest nears completion in the United States, the industry’s focus turns to the 2004 crop. Analysts say the expected gap between world cotton production and consumption should make the upcoming year “interesting.” The United States still is expected to fill the major portion of the discrepancy between the world’s cotton production and its needs in 2004, but China, a major importer of U.S. cotton, hopes to produce more of its own cotton to decrease the need for imports.

“As usual, we will keep an eye on China,” David Stanford, PCCA’s vice president of marketing said. “Due to a tremendous shortfall between its use and production, China will depend heavily on an increase in domestic cotton production. It will be interesting to see if producers there will plant more acres to cotton with grain prices as attractive as they are and if they can maintain or improve their cotton yields on any of the new acreage that is planted,” he explained.

Brazil also is a country to keep an eye on in the upcoming year. According to analysts, the size of the country’s cotton crop could have an impact on the world market if producers there substantially increase production and Brazil becomes a serious exporter of cotton. Closer to home, an increase in 2004 planted acreage is expected in some of PCCA’s service area.

“Cotton production in Kansas will continue to increase, but at this point in the year it’s difficult to estimate the amount of additional acres that will be planted to cotton in the state,” Stanford said. “We expect cotton acreage will increase approximately five percent in South Texas, and a rise is seen in Central Texas as well. However, cotton acreage probably will remain roughly the same on the High and Rolling Plains,” he added.

Moisture remains a critical issue on the High Plains where most areas received only half of the normal annual rainfall in 2003, and the 2004 crop will get off to a rough start if the region does not receive adequate rainfall before planting.

“Despite the usual uncertainties we face at the beginning of every new crop year, I’m more optimistic than I have been in quite a while as we enter 2004,” Stanford concluded.