World Cotton Supply &Use Outlook Andrei Guitchounts, ICAC ACA 6th Annual Congress 13-14 March 2008, Lusaka

Cotlook A Index Season-average (US cents/lb) average 73/74 – 02/03 = 70* Sept. 1, 2007 average 73/74 – 02/03 = 70 cents/lb *Average, August 2007 - February 2008

WORLD COTTON PRODUCTION World cotton production is estimated at 25.9 million tons in 2007/08, 3% lower than during the previous season due to a decline in world area. The world average yield is projected to remain stable in the record territory of 770 kilograms of lint per hectare. The largest declines in area in 2007/08 took place in the USA (-18%), African Franc Zone (-28%), and Turkey (-6%) and more than offset area increases in India (+4%), Brazil (+5%) and China (Mainland) (+2%).

WORLD COTTON AREA Million Hectares World cotton area is projected to remain stable in 2008/09 at 33.7 million hectares. However, cotton area in the USA is projected to decline by a further 18% in 2008/09 as a result of the surging demand for soybeans, corn, wheat and other oilseeds.

Prices of Competing Crops US$/ton (Maize, Wheat, Soybeans) US cents/pound (Cotton) During the first six months of 2007/08, the Cotlook A Index averaged 17% higher compared with the average in 2006/07, U.S. average prices for wheat increased by 61%, and average prices of soybeans increased by 48% over the same period, making cotton a relatively less attractive crop to grow. Average U.S. corn prices increased 47% during 2006/07 and by 13% during the first six months of 2007/08. Reduced cotton plantings in the USA could be offset by increases in China (Mainland), India, African Franc Zone, Australia and Brazil, while stable area is projected for Pakistan, Turkey and Uzbekistan. In a number of cotton producing countries growers are not expected to switch from planting cotton to alternative crops because of agronomic limitations, government policies insulating farmers from the impact of international prices and historical traditions. 2006/07 2007/08 5

World Cotton Yield Kg/ha 790 774 September 1, 2007

Biotech Cotton % of World Cotton Area Sept. 1, 2007

Production by Country Million tons Sept. 1, 2007

ANNUAL GROWTH RATE IN GLOBAL COTTON MILL USE World cotton mill use is projected to increase in 2007/08 by 2% to 27.1 million tons and by just 1% to 27.4 million tons in 2008/09. The slower growth rate of cotton mill use compared with the three previous seasons is a result of a slower world economic growth and an increase in cotton prices relative to polyester.

GDP and Textile Fiber Consumption Change in GDP & Textile consumption In January 2008, the IMF revised downward its estimates for global economic growth by around half a percentage point each year during 2002-07, as well as its projections for 2008-12. The world economy is now forecast to grow at about 4.1% in 2008, 0.8% lower than forecast in April 2007. World textile fiber consumption (end-use) is forecast to expand by 4% to 70 million tons in 2008. Net domestic end-use fiber consumption in the USA remained flat since 2005 and most of the world end-use fiber consumption growth took place in China (Mainland), India and other developing countries.

WORLD COTTON IMPORTS Million Tons World cotton imports are projected to increase by 7% in 2007/08 to 8.8 million tons, due to a projected increase in imports by China (Mainland) to 3 million tons from 2.3 million imported in 2006/07. Imports by the rest of the world are expected to decline moderately by 160,000 tons.

COTTON EXPORTS Million Tons Exports by the USA are projected to increase to 3.4 million tons in 2007/08 from 2.8 million tons in 2006/07. The U.S. stocks-to-use ratio almost doubled during 2006/07 to 53%, and is estimated at 41% in 2007/08. Relatively large stocks accumulated in the USA as a result of reduced imports by China (Mainland) in 2006/07, the possible effects of the elimination of the Step 2 program and the emergence of India and Brazil as major exporters of cotton. Exports by India are projected to reach 1.2 million tons in 2007/08, up from 1 million tons during previous season, making India the second largest exporter of cotton and the largest supplier to China (Mainland). Exports from Brazil are projected to more than double to 630,000 tons in 2007/08, while exports from Australia, African Franc Zone and Uzbekistan could decline due to reduced supplies. In 2008/09, world imports are projected to remain stable, while U.S. exports are expected to decline to less than 3 million tons, due to reduced supply, leading to a decline in the U.S. stocks-to-use ratio to 30%. The decline in the U.S. exports could be offset by an expansion of exports by India, Brazil and the CFA frank zone.

WORLD COTTON PRODUCTION AND USE Mill Use Production As a result of the gap between world production and consumption, world ending stocks are projected to decline during 2007/08 by 1.3 million tons (10%) to 11.4 million tons.

WORLD ENDING STOCKS Million Tons World mill use is projected to exceed production again in 2008/09, and a further reduction in world ending stocks could take place to an estimated 10.7 million tons (-7%). The ending stocks to mill use ratio in the world-less-China (Mainland) is projected to decline in 2008/09 by three percentage points to 52%.

STOCKS-TO-MILL USE RATIO: WORLD-LESS-CHINA (M)* The main variables in this model are the stocks-to-mill use ratio in the World-less-China (Mainland) and the stocks-to-mill use ratio in China (Mainland). The projected price increase in 2007/08 is the result of an expected significant decrease in the stocks-to-mill use ratio in the World-less-China (Mainland) from 58% in 2006/07 to 55% in 2007/08. This price forecast takes into account the average Cotlook A Index between August 2007 and January 2008. The increase in average cotton prices is benefiting producers. The value of world cotton production is increasing from $34.8 billion in 2006/07 to $38.2 billion this season. The average value of exports is rising by $2.4 billion. * World-less-China (M) ending stocks, quantity divided by World-less-China (M) mill use.

Cotlook A Index Season-average (US cents/lb) average 73/74 – 02/03 = Sept. 1, 2007 average 73/74 – 02/03 = 70 cents/lb

International Cotton Advisory Committee