10/30/2017
1
2017/18 Cotton Outlook 2017 Ag Econ In‐service Training
Dr. S. Aaron Smith, Assistant Professor,
Department of Agricultural and Resource Economics,
University of Tennessee
https://ag.tennessee.edu/arec/Pages/cropeconomics.aspx
Overview
• Domestic (U.S.) Supply and Demand• Tennessee
• Global Supply and Demand
• Price and Crop Insurance
• 2018 Price Outlook
10/30/2017
2
Recent Past Cotton Economic Factors
Declining Demand
High Stocks– World and China High stocks were not as influential on price because the majority was held in China and the market knew that most of that was not going into the world pipeline. It was China’s stocks policy that was important, not the actual stocks number.
Declining US Acreage and Production
The New Dynamics of the Cotton Market
Demand is Improving
China stocks have been reduced Massive stocks had less impact on prices than most imagined because China reduced area and production, cut imports, and utilized stocks in their mills– 2 years of very good government reserve sales.
Emergence of new export markets
US has gained market share
10/30/2017
3
U.S. SupplyIncreased production
Growing domestic stocks
10/30/2017
4
0
5
10
15
20
25
301953
1955
1957
1959
1961
1963
1965
1967
1969
1971
1973
1975
1977
1979
1981
1983
1985
1987
1989
1991
1993
1995
1997
1999
2001
2003
2005
2007
2009
2011
2013
2015
2017
Millions of Acres
U.S. Upland Cotton Acres Planted and Harvested, 1953‐2017
Harvested Planted
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
1953
1955
1957
1959
1961
1963
1965
1967
1969
1971
1973
1975
1977
1979
1981
1983
1985
1987
1989
1991
1993
1995
1997
1999
2001
2003
2005
2007
2009
2011
2013
2015
2017
Harvested
‐to‐Planted Ratio (%)
U.S. Upland Cotton Harvested‐to‐Planted Ratio, 1953‐2017
Min 63%
Max 97%
Average 91%
StDev 7%
Abandonment in Texas drives domestic production
10/30/2017
5
US Yield = 7.3666x + 351.07R² = 0.85
0
100
200
300
400
500
600
700
800
900
10001953
1955
1957
1959
1961
1963
1965
1967
1969
1971
1973
1975
1977
1979
1981
1983
1985
1987
1989
1991
1993
1995
1997
1999
2001
2003
2005
2007
2009
2011
2013
2015
2017
Yield (lbs/acre)
U.S. Upland Cotton Yield, 1953‐2017
National yield increasing on average 7.34 lbs/acre/year.
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6
$4.7
$5.2
$2.8
$3.6
$6.9
$6.4
$5.8
$4.7
$4.7
$3.7
$5.3
0
5
10
15
20
25
0
1
2
3
4
5
6
7
8
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Millions of 480 lb bales
Billions of Dollars
U.S. Cotton Production, 2006‐2017
$ Bales
10/30/2017
7
9.4810.05
6.34
2.952.60
3.353.80
2.35
3.65 3.80
2.75
5.80
0
2
4
6
8
10
12
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Millions of 480 lb. B
ales
U.S. Cotton Marketing Year Ending Stocks 2006‐2017
TennesseeAcres up
Near record yield
10/30/2017
8
84%
86%
88%
90%
92%
94%
96%
98%
100%
0
100,000
200,000
300,000
400,000
500,000
600,000
700,000
800,000
Harvested
‐to‐Planted Ratio (%)
Acres
Tennessee Cotton Acres Planted and Harvested, 1980‐2017
Harvested Planted H/P
Cotton Acres Planted In Tennessee, 2017 (FSA Certified)
10/30/2017
9
Tennessee Top 5 Planted Acres of Cotton, 2017 (FSA Certified)
10/30/2017
10
TN Yield = 7.7563x + 344.93R² = 0.54
0
200
400
600
800
1000
12001953
1955
1957
1959
1961
1963
1965
1967
1969
1971
1973
1975
1977
1979
1981
1983
1985
1987
1989
1991
1993
1995
1997
1999
2001
2003
2005
2007
2009
2011
2013
2015
2017
Yield (lbs/acre)
Tennessee Upland Cotton Yield, 1953‐2017
Tennessee yield increasing 7.76 lbs/acre/year –greater than the national average!
$0.30
$0.16
$0.13
$0.15
$0.28
$0.37
$0.26
$0.16$0.15
$0.09
$0.19
0.00
0.20
0.40
0.60
0.80
1.00
1.20
1.40
1.60
0.00
0.05
0.10
0.15
0.20
0.25
0.30
0.35
0.40
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Millions of 480 lb bales
Billions of Dollars
Tennessee Cotton Production, 2006‐2017
$ Bales
10/30/2017
11
U.S. DemandReliance on exports
75364 3
5 43 3 4 3
5 64 3
5 5 6
9
6 757 6
2
7 7 68 8 7
5798 7 8
47 7
11121414
18
131413121412131111
9
1515
89
8
899
109
8 88 8
77
6 776 6
6
6 55
65
6
7 7 8
9 81010
10
11
111111
10
108
8767
6
5 534
4
3
4
44
4
3 4
0
5
10
15
20
25
1960
1962
1964
1966
1968
1970
1972
1974
1976
1978
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
2012
2014
2016
Millions of 480 lb Bales
U.S. Cotton Use, 2006‐2017
U.S. cotton use moved from roughly 50/50 exports to domestic
consumption to 70‐85% exports in the early 2000s.
10/30/2017
12
190197
140
69
51
82 82
60
89
109
55
117
0
50
100
150
200
250
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Days on Han
d
U.S. Cotton Days on Hand [Ending Stocks/(Use/365)], 2006‐2017
Cotton Domestic Balance Sheet, USDA‐WASDE
2013/14 2014/15 2015/16 2016/17 Est
2017/18 Projected
September
2017/18 Projected October
2017/18 Change From
Previous Month
Change 2016/17 to
2017/18Planted and Harvested Acres & Yield
Planted (Million Acres) 10.41 11.04 8.58 10.07 12.62 12.62 0 2.55Harvested (Million Acres) 7.54 9.35 8.07 9.51 11.51 11.41 -0.1 1.9U.S. Yield (lbs/acre) 821 838 766 867 908 889 -19 22
Supply (Million Bales)Beg. Stocks 3.8 2.35 3.65 3.8 2.75 2.75 0 -1.05Production 12.91 16.32 12.89 17.17 21.76 21.12 -0.64 3.95Imports 0.01 0.01 0.03 0.01 0.01 0.01 0 0Total Supply 16.72 18.68 16.57 20.98 24.52 23.88 -0.64 2.9
Use & Ending Stocks (Million Bales)Domestic 3.55 3.58 3.45 3.25 3.35 3.35 0 0.1Exports 10.53 11.25 9.15 14.92 14.9 14.5 -0.4 -0.42Total Use 14.08 14.82 12.6 18.17 18.25 17.85 -0.4 -0.32U.S. Ending Stocks 2.35 3.65 3.8 2.75 6 5.8 -0.2 3.05Foreign Stocks 100.63 108.09 92.88 86.82 86.54 86.58 0.04 -0.24Chinese Stocks 62.71 66.92 58.2 48.42 39.47 39.47 0 -8.95
Price and Stocks to Use RatioU.S. Avg. Price ($/lb) $0.779 $0.613 $0.612 $0.68 $0.54-$0.66 $0.55-$0.65 $0.000 -$0.080U.S. Stocks/Use 17% 25% 30% 15% 33% 32% -0.38% 17.36%Chinese Stocks/Use 182% 197% 166% 129% 103% 103% 0.00% -26.60%
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Global Supply & DemandSoutheast asia
23 23 23 25 28 30 30 29 32 30 27 30
13 10 8 811 9 9 8
9 810
11
15 1515 13
13 14 1312
118 7
8
8 77 7
7 7 77
77
6
7
2119
17 16
1822
2019
19
1718
20
0
10
20
30
40
50
60
70
80
90
100
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Millions of Acres
World Cotton Acres Harvested, 2006‐2017
India United States China Pakistan Uzbekistan Brazil ROW
10/30/2017
14
0
10
20
30
40
50
60
70
80
90
1001960
1962
1964
1966
1968
1970
1972
1974
1976
1978
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
2012
2014
2016
Acres Harvested
(millions)
World Cotton Harvested Acres, 1960‐2017
3% Increase in Cotton Acres Harvested From 1960 to 2017.Corn 81%; Soybeans 402%; and
Wheat 9%.
World Cotton Yields by Country(lbs/acre)
Country 2006 Yield10 Year
Average Yield2017/18 Yield
Difference from 10 YearAverage
Australia 1,749 1,762 2,023 261 Brazil 1,243 1,297 1,378 80 China 1,159 1,270 1,523 253 India 476 470 477 7 Pakistan 573 606 634 29 United States 814 826 889 63 World 688 684 709 25
10/30/2017
15
10/30/2017
16
10/30/2017
17
23 25 23 25 27 29 29 31 30 26 27 30
36 37 37 32 3134 35 33 30
22 2325
25 23 2018 20
24 23 2223
20 2123
22 1913
1218
16 17 13 16
1317
21
0
20
40
60
80
100
120
140
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Millions of 480 lb. B
ales
Global Cotton Production (millions of 480 lb. bales), 2006‐2017
India China ROW United States Pakistan Brazil Australia
US share of world corn production has
decreased from 21% in 2006 to 17% in 2017.
63 63 63
4851
75
92
103
112
9790 92
0
20
40
60
80
100
120
140
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Millions of 480 lb. B
ales
Global Cotton Production, Consumption, and Ending Stocks, 2006‐2017
Ending Stocks Production Domestic Consumption
10/30/2017
18
0
1
2
3
4
5
6
7
8
9
101960
1962
1964
1966
1968
1970
1972
1974
1976
1978
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
2012
2014
2016
lbs/person/yea
r
Global Cotton Consumption Per Capita, 1960‐2017
1960:7.27
lbs/person/year
2017:7.5
lbs/person/year
Rise in use of synthetic fibers has limited cotton market
expansion.
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
50%
1960
1962
1964
1966
1968
1970
1972
1974
1976
1978
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
2012
2014
2016
U.S. Share of Global Cotton Exports (%
)
U.S. Share of Global Cotton Exports, 1960‐2017
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19
14 13 11 11 11 10 10 9 9 9 8 8
3 44 4 4
3 5 5 6 6 6 7
1 11 2 2
22 3 4 5 6
7
11 12
711 12
25 2014
8 4 55
2 3
2
3 3
3 3
3
33
33
4 3
3
4 3
2 4
4
44
43
0
10
20
30
40
50
60
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Millions of 480 lb Bales
Cotton Imports By Country (Millions of 480 lb. Bales), 2006‐2017
ROW Bangladesh Vietnam China Indonesia Turkey Pakistan India
China’s share of global importers has decline from 54% in 2011 to 13% in 2017.
13 14 13 12 1412 13
11 11 915 15
12 108 9
8 1112
12 1111
10 10
5 8
27 5
11 89
46
5 5
21
1
2 3
5 65
2 3
4 41
2
3
2 2
5 4
2
4 4
3 454
3
4 3
3 3
3
2 32 2
0
5
10
15
20
25
30
35
40
45
50
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Millions of 480 lb. B
ales
Cotton Exports by Country (Millions of 480 lb. Bales), 2006‐2017
United States ROW India Australia Brazil Uzbekistan
10/30/2017
20
21
21
21
14
11
31
50
63
67
58
48
39
8
7
11
10
12
11
12
11
13
10
12
15
5
6
5
4
8
8
6
8
8
6
8
9
9
10
6
3
3
3
4
2
4
4
3
6
0 20 40 60 80 100 120
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
Millions of 480 lb. Bales
Global Cotton Stocks by Country, 2006‐2017
China India Brazil United States ROW
Percent of global stocks held in China is down to 43% (peak of 61% in 2013).
0
10
20
30
40
50
60
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Millions of Bales
"China's Gap" Consumption less Production, 2006‐2017
Production Domestic Consumption
10/30/2017
21
189 189211
146163
262
312
345366
317
288 286
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Days on Han
d
Cotton Global Days on Hand [Ending Stocks/(Consumption/365)], 2006‐2017
World Cotton Supply and Use (Million 480 lb Bales) 2017/18 (October)
Country / RegionBeginning
Stocks Production ImportsDomestic
Use Exports LossEnding Stocks
World 89.57 120.86 38.2 118.01 38.22 0.03 92.38
US 2.75 21.12 0.01 3.35 14.5 0.23 5.8
Foreign 86.82 99.75 38.19 114.66 23.72 -0.2 86.58
Central Asia 2.51 6.18 0 2.66 2.69 0 3.33
Afr. Fr. Zone 1.77 5.32 0 0.12 4.57 0 2.41
Australia 2.54 5 0 0.04 4.1 -0.15 3.55
Brazil 7.61 7.8 0.13 3.4 3.65 -0.15 8.63
India 12.12 30 1.6 24.5 4.6 0 14.62
Mexico 0.44 1.45 0.8 1.8 0.23 0.03 0.64
China 48.42 24.5 5.1 38.5 0.05 0 39.47
EU 0.27 1.48 0.72 0.75 1.33 0 0.39
Turkey 1.68 3.8 3.4 6.75 0.28 0 1.85
Pakistan 2.27 9.15 2.4 10.6 0.35 0.03 2.84
Indonesia 0.62 0 3.4 3.3 0.01 0 0.72
Thailand 0.2 0 1.35 1.25 0 0.03 0.28
Bangladesh 1.41 0.13 7.25 6.9 0 0.01 1.87
Vietnam 0.88 0 6.6 6.2 0 0 1.29
ROW 4.08 4.93 5.44 7.89 1.86 0.00 4.69
10/30/2017
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Price and Crop InsuranceBig push to get cotton back into commodity programs
Continuous Nearby Cotton Futures Price and Marketing Year Average Price
2006/07$0.465
2007/08$0.593 2008/09
$0.478
2009/10$0.629
2010/11$0.815
2011/12$0.883
2012/13$0.725
2013/14$0.779
2014/15$0.613
2015/16$0.612
2016/17$0.671
2017/18$0.55‐$0.65
10/30/2017
23
50
60
70
80
1‐Dec 31‐Dec 30‐Jan 1‐Mar 31‐Mar 30‐Apr 30‐May 29‐Jun 29‐Jul 28‐Aug 27‐Sep 27‐Oct 26‐Nov
Cents / lb
December Cotton Futures
2017 2016 2015
55
60
65
70
75
80
85
90
Price cents per lb.
Daily Cotton Spot Price Quotes (31‐3‐35), 2015‐2017
Southeast North Delta US Average
May 15, 2017
March 2, 2016
10/30/2017
24
Fiber Prices
30
50
70
90
110
130
150
170
190
210
230
250
270 Cents per PoundA FE Index Asian Polyester Staple
Source: NCC – October Outlook
0
200,000
400,000
600,000
800,000
1,000,000
1,200,000
1,400,000
1,600,000
1,800,000
Acres
TennesseeBase, Planted, and Insured Acres
Base Acres FSA Planted ('14‐'16) NASS Planted ('14‐'16) RMA Insured ('14‐'16)
2014: 206,123 acres of cotton planted on generic base2015: 157,035 acres of cotton planted on generic base
10/30/2017
25
Tennessee Corn – Crop Insurance Summary
RP, 1,144
YP, 311
YP‐CAT, 1,085
RPHPE, 4
STAX, 190 ARP, 2 AYP, 5
AVERAGE ANNUAL NUMBER OF CROP INSURANCE POLICIES PURCHASED BY INSURANCE PLAN FOR COTTON IN
TENNESSEE, 2014‐2016
RP, 139,836YP, 14,976
YP‐CAT, 65,401
RPHPE, 100STAX, 209 ARP, 92
AYP, 0
AVERAGE ANNUAL NUMBER OF ACRES INSURED BY INSURANCE PLAN FOR COTTON IN TENNESSEE, 2014‐2016
0
100
200
300
400
500
600
50% 55% 60% 65% 70% 75% 80% 85%
Number of Policies
Buy‐up
Revenue Protection Crop Insurance For Coton by Buy‐up Level Purchased in Tennessee, 2014‐2016
2014 2015 2016
0
50
100
150
200
50% 55% 60% 65% 70% 75% 80%Number of Policies
Buy‐up
Yield Protection Crop Insurance For Coton by Buy‐up Level Purchased in Tennessee, 2014‐2016
2014 2015 2016
2018 Price OutlookProduction projected to exceed global demand again…..but for how long.
10/30/2017
26
Hurricane Harvey
Texas 9.33 million balesEstimates
400,000 to 800,000 bales loss
Hurricane Irma
Georgia 2.7 million balesEstimated 10 to 20% loss, highly variable
10/30/2017
27
Tennessee Considerations for 2018
• Old crop (2017)• Tennessee producers should take advantage of quality premiums
• Macro conditions and USD
• Export sales pace• Harvest weather
• New crop (2018)• Domestic carry over will weigh on prices
• Planted acreage will be dictated by relative prices
10/30/2017
28
2018 Price Projections
Source 2018 Price
CBOT $0.69
CBO $0.64
FAPRI $0.60
WASDE $0.55‐$0.65
Cotton - Net Return Table ($/acre)Assumes a cost of production of $658/acre
Yield (lb/acre)
700 750 800 850 900 950 1,000 1,050 1,100 1,150 1,200
60.00 (238) (208) (178) (148) (118) (88) (58) (28) 2 32 62
61.25 (229) (199) (168) (138) (107) (76) (46) (15) 16 46 77
62.50 (221) (189) (158) (127) (96) (64) (33) (2) 29 61 92
63.75 (212) (180) (148) (116) (84) (53) (21) 11 43 75 107
65.00 (203) (171) (138) (106) (73) (41) (8) 24 57 89 122
66.25 (194) (161) (128) (95) (62) (29) 4 37 71 104 137
67.50 (186) (152) (118) (84) (51) (17) 17 51 84 118 152
Price 68.75 (177) (143) (108) (74) (39) (5) 29 64 98 132 167
(cent/lb) 70.00 (168) (133) (98) (63) (28) 7 42 77 112 147 182
71.25 (159) (124) (88) (53) (17) 19 54 90 126 161 197
72.50 (151) (114) (78) (42) (6) 31 67 103 139 176 212
73.75 (142) (105) (68) (31) 6 42 79 116 153 190 227
75.00 (133) (96) (58) (21) 17 54 92 129 167 204 242
76.25 (124) (86) (48) (10) 28 66 104 142 181 219 257
77.50 (116) (77) (38) 1 39 78 117 156 194 233 272
78.75 (107) (68) (28) 11 51 90 129 169 208 247 287
10/30/2017
29
0.00
0.05
0.10
0.15
0.20
0.25
0.30
0.35
0.40
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
Cotton/Corn and Cotton/Soyb
ean Price Ratio
Soyb
ean/Corn (s/c) Price Ratio
Monthly U.S. Price Ratios Corn, Soybeans, and Upland Cotton, 2000‐2017
s/c ct/c ct/s
2.55
0.18
0.07
Price ratio is one out of three relative ratios to consider (price,
yield, & cost)
Key Issues for 2018
• USDA numbers will reduce the crop… but by how much
• Look to see if projected exports remain strong
• Will demand continue to improve?
• Crops in India, China, Australia• Prices likely 60 to 70 cents (maybe 55 – 65)
• Cottonseed program still a possibility
• USDA may look to authorize CGCS Program for 2017 and 2018
• Getting cotton back into commodity programs
10/30/2017
30
Resources
• Crop Economics Webpage• https://ag.tennessee.edu/arec/Pages/cropeconomics.aspx
• Market highlights• https://ag.tennessee.edu/arec/Pages/tnmkthighlights.aspx
• Crop Budgets• https://ag.tennessee.edu/arec/Pages/budgets.aspx
• UT Crop Blog• http://news.utcrops.com/
• Quarterly Market Zoom Meeting (next one Nov 8)
Thank you Questions?
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