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US cotton industry’s 2018 economic outlook

National Cotton Council economists note few key factors that will shape the US cotton industry’s 2018 economic outlook.

In recent months, cotton prices have grown despite the increase in world production. Although the current supply/demand chain are bearish, strong US exports, a weaker US dollar, heavy speculative buying and large mill fixations have supported prices, however, for the coming year, projections of record ending stocks outside of China could see prices soar.

In the long term perspective, several positive factors point to a more optimistic outlook for the cotton industry over the next few years. The world economy is improving and stronger growth is estimated in 2018 and 2019.

International cotton demand is increasing with current forecasts calling for an increase of approximately five per cent in 2017, which is more than double the previous five-year average. China will begin the next round of reserve auctions next month. A successful auction in 2018 could ensure that China remains the larger cotton importer.

Jody Campiche, the NCC’s vice president, Economics & Policy Analysis, says, World mill use is expected to exceed world production in the 2018 marketing year and global cotton stocks are projected to decline by 5.4 million bales in the 2018 balance sheet. In NCC’s annual Economic Outlook, she noted the global stocks decline is due to reduced inventories in China. China’s stocks are declining with USDA estimating a fall of 8.0 million bales in 2017. In 2018, an additional 10.0 million bale reduction in total stocks is expected.

World production is estimated to be 119.3 million bales in 2018. World mill use is projected to increase by approximately three per cent in 2018 to 124.8 million bales with most of the growth from China, Vietnam and Bangladesh. The US will remain the largest cotton exporter with a market share of 39 per cent in 2017 as against 40 per cent in 2016. China is currently the top export market for the 2017 crop year, followed by Vietnam and Pakistan. World trade is projected to be higher in the 2017 marketing year, but increased competition from other major exporting countries has led to a fall in the U.S. market share.