Cotton: foreign indications for 1992/93 harvested area - U.S. Dept. of Agriculture, Economic Research Service report

Important factors that influence foreign cotton area include the current cotton market situation, domestic and world economic conditions, government policies, and weather. This season's lower world cotton prices, and relatively high stock/use ratios, indicate that next season's foreign cotton area could decrease. Preliminary indications are that foreign harvested cotton area in 1992/93 could range from 27.0 to 29.0 million hectares. The high end of the forecast range suggests an area similar to 1991/92, and implies that government policies in several major producing countries will support production in the face of lower cotton prices. The low end of the forecast range considers the impact of this season's lower prices, together with possible weather-related losses, and financial problems. In China, as in the past, a large cotton crop is needed so that it can maintain its role as a major exporter of both raw cotton and textiles, while meeting its rising domestic consumption requirements. The Government indicated that the goal for the eighth 5-year-plan (1991-95) is to produce 21 to 23 million bales per year. China is expected to continue its push to maintain cotton production in 1992/93. The government-supported cotton procurement price, combined with subsidization of cotton production inputs, prompted larger plantings for 1991/92. This emphasis should continue for 1992/93. However, lower world prices could affect these policies, reducing the area planted to cotton below the estimated 6.1 million hectares for 1991/92. Because of dry weather this past fall, China could not plant all its intended wheat, leaving more land for cotton and other spring crops. This could offset some of the impact from the reduced world price. Cotton area in the former Soviet Union for 1992/93 is affected by two opposing forces: the need to earn hard currency versus the need to provide more food for the cotton producing region of the Central Asian Republics. The strongest argument for area expansion revolves around pressure to earn hard currency by means of cotton exports. The pressure to reduce cotton plantings comes from the Republics' need to increase the area dedicated to food and forage crop production. In addition to food concerns, the Republics experienced an increase in soil salinity from cotton irrigation. On balance, area is expected to decline slightly from this season's estimated 3.0 million hectares, continuing the trend of the past 4 years. In Mexico, indications are that area planted to cotton is expected to be down from 1991/92. However, the exact level will depend primarily on the amount of credit available to producers. Mexican cotton is produced by the communal sector who do not own the land they farm. The Mexican Congress approved constitutional changes that could alter land tenure laws and the way financing is provided to the communal sector. The government hopes these changes will stimulate cotton production by encouraging private lenders to provide credits to the communal sector. However, with the recent sale of several large commercial banks to the private sector, the banks may not be in a position to offer production credit loans to the communal sector. South American cotton planting for 1992/93, which will begin in about 6 to 8 months, remains uncertain, although preliminary indications are that sowings will be lower. A record 1991/92 world cotton crop, increased world stocks and lower cotton prices, are the main reasons for reduced planting prospects. Lower plantings are most probable in the three largest producing countries of Brazil, Argentina, and Paraguay. In Brazil, the largest of the three, area sown will be influenced by the current season's larger than expected crop, probable competition for area from grains and soybeans, and the level of rural credit available. In Argentina, cotton farmers are going through a tight financial situation. In 1990/91, nearly 80 percent of the farms either lost money or broke even as the rain destroyed crops and lowered fiber quality. Nevertheless, cotton in Argentina remains the best alternative, with only minor downward changes indicated in area for 1992/93. In Paraguay, the lack of government support, weak international cotton prices and, an over-valued local currency have seriously reduced ginning and export margins, because producers received lower prices for their crop from the ginners. If industrial forecasts prove correct, and prices are lower at planting time later this year, and if the Government continues its lack of support for production credits, then 1992/93 plantings are likely to remain near the reduced 1991/92 level. In South Asia and Oceania, cotton plantings should be slightly above the 1991/92 level. Although plantings in Pakistan will not begin until the April-May period, cotton area intentions for the 1992/93 season are being influenced by this year's lower cotton prices. However, recent agricultural policy changes, designed to keep land in cotton, will likely offset the impact from lower world prices. In India, current domestic price signals are expected to encourage additional plantings, despite the lower world price. However, as prices of many other commodities within India are also rising, there will not be a major shift into cotton. In Australia, the outlook is for a slight increase from this season's drought-reduced area. Although some increase in irrigation water supply will help alleviate the water shortage problem, water supplies will be a bigger constraint than the drop in prices. Due to falling returns, it is predicted that dryland area likely will decline and the more profitable irrigated area will increase. In Turkey, cotton sowing this spring is expected to be up slightly from last season as wetness this past October and December, and unusually cold weather hampered grain planting in the coastal area. The lower grain plantings will leave more fields open to spring crops, such as cotton. In addition, domestic prices remain higher than world prices despite surplus domestic cotton stocks. These two situations indicate higher cotton plantings for 1992/93. The Syrian 1992/93 cotton crop may face rising production costs and lower planted area. Due to the high cost of diesel fuel, cotton production costs may increase by as much as 50 percent in Syria. If the guaranteed procurement price for the 1992/93 cotton crop does not keep pace with the cost of producing cotton, planted area may repeat this year's level. The Syrian agricultural council has maintained a policy of promoting continuous increases in cotton production to provide a larger crop for export. This policy traditionally has been implemented through yearly increases in the procurement price for seed cotton. However, if the increased cost of production is not covered by an increase in the procurement price, and given lower cotton world prices, area will decline from the estimated 190,000 hectares of 1991/92. The Egyptian Government would like to expand cotton area. However, the major constraint to production continues to be the low Government procurement price compared to the world price. Because of the relative low returns on investment, Egyptian farmers have focused on the production of alternative commodities. For 1992, the Egyptian Government has pledged to make sure that prices for next season's cotton crop of all varieties will be equivalent to 66 percent of world market rates. It is unlikely that this situation will hold area at 1991/92 levels. Greece, the largest EC producer, is expected to increase area in 1992/93. Abundant rain and snow cover this winter should result in enough water supplies for irrigation. Somewhat offsetting this, is the non-favorable EC price package decisions of last April favoring a shift to corn and other spring crops.

NOTE: Information in this article is based on field reports received in early January 1992 from U.S. agricultural counselors and attaches together with input from FAS Washington analysts. Actual area could vary from these estimates for a number of reasons, including government policy changes, weather during the crop season, and price changes for cotton and competing crops. The first official USDA forecast of total 1992/93 foreign harvested area will be issued in May. Individual country estimates for area, yield and production will be released in July of this year.

Ronald R. Roberson Production Estimates and Crop Assessment Division, FAS/USDA, (202) 720-0879.

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