The views expressed are those of the author and should not be attributed to the Economic Research Service or USDA.

COTTON MARKET PROJECTIONS: AGLINK/COSIMO 2013-22 Stephen MacDonald, USDA/ERS

September 20, 2013

Cotton in Aglink-Cosimo: Model expanded to include cotton in 2013

• Cotton is primarily Gossypium hirsutum (“upland”)

• Data in terms of fiber

• Model simplifications: – Competition among fibers is not explicit

– Common template for several country models

– Shocks to other commodities affect cotton, but in Aglink cotton does not affect other commodities • World cotton output: 3 percent grains & oilseed value

World cotton market: Current situation and outlook for 2013/14

• Cotton recovering from price 2010 shock

• Stocks rising rapidly in China

Cotton: production, utilization, and stocks

Supply to exceed demand, stocks rise

Source: WASDE, September 2013

0

5

10

15

20

25

30

2005 2006 2007 2008 2009 2010 2011 2012 2013

China stocks Rest of countries Production Consumption

Million tons

World cotton prices lower since 2010/11: polyester remains low, China price high

Sources: Cotlook Ltd, BCO, CNCIC, and IMF.

USD/ ton

0

1,000

2,000

3,000

4,000

5,000

6,000

Jan-10 Jul-10 Jan-11 Jul-11 Jan-12 Jul-12 Jan-13 Jul-13 Jan-14

A-Index China spot Polyester Reserve

*

* *

54 %25 %

China premium, 2010 China premium, 2013

World cotton market: outlook for 2022/23

• Consumption eventually surpasses pre-crisis

• India replacing China

• India and China reduced role in fiber trade

• Cotton prices low vis-a-vis grains, oilseeds

Cotton world price and consumption: China & India dominate consumption

0

500

1000

1500

2000

2500

3000

3500

0

5

10

15

20

25

30

2003 2005 2007 2009 2011 2013 2015 2017 2019 2021

USD/ton Million tons

Marketing year

China India Pakistan Rest of countries Nominal price Real price

Source: OECD, June 2013

Cotton household consumption, 1980-2022: per capita, disaggregated by region

Sources: ICAC. September 2013, OECD, June 2013

0

2

4

6

8

10

12

14

16

1980 1985 1990 1995 2000 2005 2010 2015 2020

C. and E. Europe and former USSR Industrial countries Developing countries World

Kilograms/capita

Price ratio, income growth, consumption growth: 5-year averages 1982-2022

0.60

0.70

0.80

0.90

1.00

1.10

1.20

-3.0

-2.0

-1.0

0.0

1.0

2.0

3.0

4.0

5.0

6.0

1987 1992 1997 2002 2007 2012 2017 2022

Thousand tonnes

World income growth (left axis) World cotton consumption (left axis)

Polyester/cotton price ratio (right axis)

Price ratio Percent

World cotton consumption grows just under average rate to 2022

Sources: OECD, June 2013, Cotlook Ltd, BCO.

Cotton yields vary by country: averages by decade, 1980-2019

0

0.5

1

1.5

2

2.5

1980s 1990s 2000s 2010s

Tons/ ha

Averages (2013-22 growth rate in parentheses)

Australia Brazil

China USA

(0.4)

(0.5)

(0.6)

(1.0)

0

0.5

1

1980s 1990s 2000s 2010s

Tons/ ha

Averages (2013-22 growth rate in parentheses)

USA Pakistan

Other Asia Developed India

(0.6)

(0.9)

(0.7)

(1.7)

Yield growth moderates in higher yielding countries

Yield gains stronger in lower yielding countries

Source: OECD, June 2013

Cotton exports by country: 2010-22

USA 31%

LDC Sub-Saharan

Africa 6%

Australia 10% Brazil

8% Other Asia Developed

10%

Other Subsaharan

3%

EU 3%

India 16%

Rest of countries

13%

2010-12

USA 35%

LDC Sub-Saharan

Africa 11%

Australia 11%

Brazil 9%

Other Asia Developed

8%

Other Subsaharan

4%

EU 3%

India 3%

Rest of countries

16%

2022

India is second largest exporter in base period

LDC Sub-Saharan Africa nearly doubles share of world trade by 2022

U.S. maintains highest share

Source: OECD, June 2013

Cotton imports by country: 2010-22

China 41%

Bangladesh 9%

Turkey 8%

Vietnam 4%

Pakistan 4%

Indonesia 5%

Mexico 3%

Korea 3%

Rest of countries

23%

2010-12

China 21%

Bangladesh 15%

Turkey 14%

Vietnam 8% Pakistan

6%

Indonesia 6%

Mexico 4%

Korea 4%

Rest of countries

22%

2022

China dominates importers in base period

Bangladesh nearly doubles share of world trade by 2022

China remains largest importer

Source: OECD, June 2013

Cotton price relative to other crop prices: downward shift evident after 2000

Cotton prices remain low relative to competing crops

Source: OECD, June 2013

0

20

40

60

80

100

120

140

160

1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 2020 Marketing year

Soybeans Maize Wheat

Index: Average ratio during 1990s = 100

Cotton ratio to:

Cotton area relative to other crops: India shows strongest growth

0.4

0.6

0.8

1

1.2

1.4

1.6

2000 2005 2010 2015 2020 Marketing year

India China USA Pakistan

Index: 1995-99 average cotton share of cropland = 1.0

Cotton’s area share grows in India

Source: OECD, June 2013

Cotton world projections to 2022: Highlights

• Global consumption grows slightly below its long term rate

• India replaces China as world’s largest producer, almost as consumer

• Cotton prices remain low relative to other crops

• U.S. remains world’s largest exporter

• China remains largest importer, role diminished

Cotton world projections to 2022: Uncertainties

• Evolution of cotton policy in China

• Ability of India to continue to expand yields

• Technical change in man-made fibers

• Consumer taste for fibers

Additional information

AGLINK-COSIMO results: www.oecd.org/site/oecd-faoagriculturaloutlook/

USDA International Baseline: www.ers.usda.gov/data-products/international-baseline-

data.aspx

ERS Cotton data and analysis: www.ers.usda.gov/topics/crops/cotton-wool.aspx