1. Cotton Economics Research Institute Policy Modeling Group Darren Hudson, Director Maria Mutuc, Post-Doctoral Research Associate Don Ethridge, Professor Emeritus GLOBAL COTTON OUTLOOK 2012/12 – 2022/23 Cotton Economics Research Institute Department of Agricultural and Applied Economics Texas Tech University Lubbock, TX 79409 Telephone: 806.742.2821 Email: darren.hudson@ttu.edu http://www.ceri.ttu.edu/policy Funding provided by the USDA/CSREES

2. CERI TTU 2 EXECUTIVE SUMMARY

3. CERI TTU 3  ECONOMIC FUNDAMENTALS –Global growth is projected at 3.2% in 2012, to remain at 3.0% from 2013-2018 and slowdown to 2.5% from 2019-22. This growth of 2.8% over 2013-22 is below the long-term growth rate of 3.7% from 1995-2008. –U.S. growth is expected to slowdown from 2.1% in 2012 to 1.8% in 2013 amidst a large output gap that emerged from the 2008-9 crisis.  COTTON MILL USE –Mill use is projected to grow by about 32 million bales over the next ten years beginning 2012/13. –Mill use is projected to remain concentrated in Asia. By 2022/23, the nations/regions that are projected to lead the world in cotton mill use are (share of world mill use in parentheses): China (34%), India (23%), Pakistan (13%), Turkey (5%), Brazil (3%), and Bangladesh (4%).  COTTON PRODUCTION –As productivity gains have slowed for the time being, yield growth is projected to decelerate from 2012/13 to 2022/23, growing by 0.5% per year. This annual gain is lower than the long-term average yield gain of 1.43%. –World cotton production is projected to increase from 118 million bales in 2012/13 to around 138 million bales in 2022/23. This growth is lower than long- term average of 2.1% in the absence of new yield- enhancing technologies and flat acreage. –By 2022/23, leading producers of cotton are projected to be (share of world production in parentheses): India (26%), China (23%), United States (12%), Pakistan (9%), and Brazil (6%).  WORLD COTTON TRADE –World cotton trade is projected to contract in 2012/13 and 2013/2014 as emerging markets fail to take up the slack in these years. –From 2014/2015 throughout the projection period, world trade is projected to grow steadily at 3.8% on average - slightly below the 4.1% growth in the last 10 years. It is projected to increase from 38 million bales in 2012/13 to 49 million bales in 2022/23.

4. 4 –China is projected to account for 31% of world imports along with (world import share in parentheses) Bangladesh (11%), Turkey (7%), and Pakistan (10%) by 2022/23. –The United States is projected to remain the world’s leading cotton exporter in 2022/23 with a 29% market share. Increased competition in the export market (with projected export market share in parentheses) will come from India (12%), Brazil (13%), Australia (10%), Uzbekistan (6%), and WCA (9%). CERI TTU

5. 5 GLOBAL AND U.S. OUTLOOK CERI TTU

6. 6  Global growth is projected at 3.2% in 2012, slightly improving to 3.4% from 2013-2018 and slowing to 2.5% from 2019-22. This is below the average rate in 1995-2008 (3.7%).  Growth in emerging and developing economies is also expected to slow to 3.2% in 2012 as the world economy remains sluggish.  Growth in advanced economies is projected to slow to 1.2% in 2012 with some recovery at 1.8% over 2013-18.  Economic recovery in the U.S. will remain fragile in 2012 with growth at 2.1% as demand growth continues to be uncertain.  China’s and India’s GDP growth is expected to correspondingly decelerate in 2012 to 7.8% and 5.5%, and in 2013 further fall to 6.9% and 4.7% as their economies mature.  Brazil’s economy is projected to grow at 1.7% in 2012, lower than the 2.7% growth in 2011. REAL GDP GROWTH: MAJOR COTTON PRODUCING COUNTRIES REAL GDP GROWTH: ADVANCED & EMERGING/DEVELOPING COUNTRIES MACROECONOMIC PROJECTIONS

7. CERI TTU 7  Mill use is projected to grow by about 32.2 million bales over the next ten years beginning 2012/13.  World cotton production is projected to increase from 118 million bales in 2012/13 to around 137 million bales in 2022/23. This growth is lower than long-term average of 2.1% in the absence of new yield-enhancing technologies and flat acreage.  Minimal fluctuation in cotton acreage is projected in the next ten years with harvested area increasing from 84 million acres in 2012/13 to 92 million acres by 2022/23.  As productivity gains have leveled off for the time being, yield growth is projected to decelerate from 2012/13 to 2022/23, growing by about 0.5% per year. This annual gain is lower than the long-term average yield gain of 1.43%. WORLD COTTON PRODUCTION & COTTON MILL USE WORLD COTTON HARVESTED AREA & YIELD

8. CERI TTU 8  World cotton trade is projected to contract in 2012/13 and 2013/2014 as emerging markets fail to take up the slack in these years.  From 2014/2015 throughout the projection period, world trade is expected to grow steadily at 3.8% on average - slightly below the 4.1% growth in the last 10 years. It is projected to increase from 38 million bales in 2012/13 to 49 million bales in 2022/23.  China’s import levels are anticipated to be around 12 million bales per year from 2012/13 to 2022/23 – close to 2010/11 import level.  Following large upward corrections in 2012/13 and 2013/14, the stocks-to-use ratio is projected to decline to 40% in 2022/23.  As countries gradually shake off their excess ending stocks in the absence of large adjustments in consumption and production, the world cotton price (A-index) is relatively flat - projected to lie within a narrow range of 82¢-93¢ from 2012/13 to 2022/23. WORLD COTTON TRADE WORLD COTTON PRICE & STOCKS-TO-USE RATIO

9. CERI TTU 9  Following slightly higher production in 2012/13, cotton output in the U.S. is projected to average at 15.6 million bales for the rest of the projection period.  Cotton exports are projected to remain below 15 million bales per year through 2022/23, moving from 17 million bales in 2012/13 to 14.7 million bales in 2022/23.  Cotton mill use is projected to average 3.1 million bales a year from 2012/13 to 2022/23 – below the long-run average of 3.7 million bales.  Over the projection period, cotton acreage is projected to be around 8.8 million acres.  National average cotton yield was 1.65 bales per acre in 2012/13. It is expected to grow minimally by 0.4% per year thereafter until 2022/23. U.S. : PRODUCTION, EXPORTS & MILL USE U.S. : HARVESTED AREA & YIELD

10. CERI TTU 10  World cotton trade is projected to be 32 million bales in 2012/13 and increase steadily to only 48.5 million bales in 2022/23 as long-term global growth slows down following structural adjustments in maturing economies such as Brazil, China and India.  Exports from the United States are estimated to account for about 32% of world cotton trade in 2012/13. This share is projected to be maintained at 29% for the next ten years.  Over the next ten years, the share of world cotton production of major cotton producers is projected to stay close to 2012/13 levels. However, India is projected to eclipse China as the largest cotton producer. The U.S. is projected to remain as the third leading producer after China. WORLD COTTON TRADE & U.S. EXPORTS SHARE OF WORLD COTTON PRODUCTION: 2022/23

11. CERI TTU 11 MAJOR GROWTH MARKETS

12. CERI TTU 12  China’s imports of cotton are projected to drop by about 50% in 2012/13 as a result of rising inventories following government purchases to support domestic prices and incomes.  Thereafter, imports are projected to grow by a modest 2.5% per year through 2022/23 and maintain an average of about 12.3 million bales of imports per year.  As wages have risen by as much as 20% each year from 2002, the cost of textile production in China has increased and textile expansion has slowed with some mills relocating to Bangladesh, Vietnam, and other Asian countries.  Chinese mill use growth is projected to decelerate, picking up only 10 million bales from 2013/14 to 2022/23 after dropping by 7% in 2012/13.  Cotton production is not anticipated to increase significantly and is projected to be 31 million bales per year, on average, from 2012/12 through 2022/23. CHINA: COTTON IMPORTS CHINA: COTTON PRODUCTION & MILL USE

13. CERI TTU 13  A sustained growth in the cotton textile industry is projected to increase cotton mill use by an average of 4.2% through 2022/23. This growth is lower than the 5% average increase over the past decade (2002-11) due to weaker global outlook in the next few years.  However, imports of cotton will initially increase in 2012/13 as production is cut back. Thereafter, imports steadily decline due to India’s production increases in the next 10 years.  Cotton mill use in Bangladesh is projected to rebound to 3.6 million bales in 2012/13 and reach 5.3 million bales through 2022/23, growing by 4.7% per year, sustaining its position as one of the main textile expanding countries in the world.  With low production, most of the cotton mill use will be sourced from imports. The U.S. is a leading supplier of cotton to Bangladesh but faces competition from India, Australia, and African countries. BANGLADESH: COTTON MILL USE & IMPORTS INDIA: COTTON MILL USE & IMPORTS

14. CERI TTU 14  Following the same pattern as Bangladesh, Vietnam’s cotton imports are projected to increase by 53% (to 3 million bales) through 2022/23, growing by 6% per year, to support their textile expansion. This growth is driven by China’s textiles becoming relatively more expensive.  A modernizing and expanding textile industry in Pakistan is projected to boost cotton mill use by around 6 million bales from 2012/13 through 2022/23.  From 2012/13 through 2022/23, cotton area is projected to increase by 14%, to 8.5 million acres. Although Bt cotton has not been officially adopted in Pakistan, unofficial numbers indicate that Bt cotton is grown on over half of total cotton acreage. PAKISTAN: COTTON MILL USE & PRODUCTION VIETNAM: COTTON MILL USE & IMPORTS

15. CERI TTU 15 DECLINING/STAGNANT MARKETS

16. CERI TTU 16  As textile producers gain more access to the markets within the Commonwealth of Independent States (CIS) in the latter half of the projection period, mill use is projected to recover as well. Mill use is projected to increase to 7.5 million bales in 2022/23.  Production is projected to increase by only 1.6 million bales through 2022/23 following a decline in 2012/13 as productivity gains level off in the second half of the projection period.  Mill use in Mexico is projected to slowly pick up through 2022/23 with the textile industry absorbing only 469,000 bales from 2012/13 (as they continue to face tougher competition from Asia in the next several years). TURKEY: MILL USE, PRODUCTION & IMPORTS MEXICO: COTTON MILL USE & IMPORTS

17. CERI TTU 17  South Korea, Taiwan, and Japan continue to experience steep declines in cotton imports - from a combined 2.6 million bales in 2012/13 down to less than a million bales by 2022/23 amidst a shrinking textile sector in these countries.  The overall decline of the spinner and textile industry in the EU is projected to continue. SOUTH KOREA, TAIWAN & JAPAN: COTTON IMPORTS EU: COTTON PRODUCTION & MILL USE

18. CERI TTU 18 MAJOR COMPETITORS

19. CERI TTU 19  India became the second largest cotton producer in the world in 2006/07 and is expected to surpass China as the leading cotton producer by 2022/23.  India is also projected to be the world’s second largest exporter over the projection period with exports growing by 4% per year from 2013/14 through 2022/23 following a large decline in 2012/13.  Harvested cotton area in India is projected to increase, rising by 17.7% (5 million acres) from 2012/13 to 2022/23 – below the 59% growth in acreage (11.2 million acres) from 2002/3 to 2011/12.  Yield gains over 2012/13 to 2022/23 are projected at 1.2% per year - below the long-term average of 3.6% on account of mature Bt technology (over 86% of national cotton acreage is already devoted to Bt). INDIA: COTTON HARVESTED AREA & YIELD INDIA: COTTON TRADE

20. CERI TTU 20  After declines in Brazilian cotton exports in 2012/13 and 2013/14 as a result of tepid demand from China, subsequent growth is projected to be limited to 15% per year, considerably weaker than the 20% average in the last 10 years, as global consumption slows.  Production gains will come from both increased acreage and yields. Cotton is projected to remain as a favorable second crop grown in rotation with soybeans or corn. Acreage is projected to average 2.7 million acres per year from 2012/13 to 2022/23 – same as the long-term average from 1991/92 to 2009/10 (2.7 million acres).  Yields are projected to increase to 2.6 bales per acre through 2022/23.  Mill use is projected to grow steadily but slowly (~ 1% per year) as Brazil’s textile industry mimics the growth in global consumption. BRAZIL: COTTON EXPORTS BRAZIL: COTTON PRODUCTION & MILL USE

21. CERI TTU 21  Cotton exports of Uzbekistan will remain steady at around 2.9 million bales per year over the projection period; they are projected to account for 6.5% of world cotton trade in 2022/23.  As a group, the WCA region (Benin, Burkina Faso, Chad, and Mali) is projected to account for 8.8% of world cotton exports in 2022/23.  With a relatively small textile industry, cotton exports are an important component of economic development in the region.  Projections are for approximately 0.2 million bale increase in both production and in exports per year through 2022/23. UZBEKISTAN: COTTON EXPORTS WEST CENTRAL AFRICA: COTTON EXPORTS

22. CERI TTU 22  Exports are anticipated to increase from 2012/13 to 2022/23 due to sustained production coupled with high carryover stocks.  Resumption of significant cotton production and exports is contingent on greater water availability.  Following significant acreage declines in 2012/13 and 2013/14, production is projected to pick up by around 1.7 million bales from 2014/15 through 2022/23 while exports increase by roughly a half a million bales over the same period.  Other Africa Region (Cote d’lvoire, Nigeria, Zimbabwe, and others) is projected to export as much as 2.5 million bales by 2022/23, up from 1.7 million bales in 2012/13. AUSTRALIA: COTTON EXPORTS OTHER AFRICA: COTTON MILL USE, PRODUCTION & EXPORTS

23. CERI TTU 23 MAIN POINTS The global outlook for cotton remains less optimistic than baselines in years prior to the 2008-9 crisis as a result of a weaker global economy in the years ahead as advanced countries continue to work on narrowing current output gaps and deficits and as emerging economies mature together with recent developments in the sector:  As productivity/yield gains have leveled off temporarily for the next several years (given technology expectations) and with acreage responding to lower cotton/grains prices (with some acreage shifts in some countries such as China), growth in production is slowing.  As countries continue to shake off excess stocks in the next few years, more significantly in China, and no drastic change in production and consumption, cotton prices are projected to decline in 2012/13 and 2013/14 and to steadily increase to 93 cents in 2022/23.