Thursday, December 8, 2022

A Hazy Forecast

U.S. cotton’s economic outlook is being clouded by factors ranging from supply chain disruptions to rising inflation.
gary adams, ncc
Gary Adams, NCC

How is 2022 starting?

The lingering effects of the COVID-19 pandemic’s shock to global trade have created an unprecedented level of stress and disruption on the entire supply chain, from transportation costs to labor availability. Thus, National Cotton Council economists say projections for the U.S./global economies in the coming year should be viewed with caution given the COVID-19 pandemic’s continued impacts.

 

What about 2022 production/offtake and prices?

NCC economists provided a 2022 detailed economic outlook for the organization’s annual meeting delegates in mid-February.

The NCC projects 2022 U.S. cotton acreage to be 12.0 million acres, 7.3% more than 2021. However, significant input cost increases are expected, largely due to higher fertilizer, fuel and chemical costs. Based on the state-level 10-year average abandonment rates and five-year average yields, 2022 harvested area is estimated to be 9.8 million acres. With an average yield of 850 pounds per acre, U.S. production is estimated to be 17.3 million bales (16.8 million upland and 438,000 extra-long staple). 

Regarding offtake, the NCC is projecting an increase to 2.7 million bales of U.S. mill cotton use in the 2022 crop year. Preserving important Western Hemisphere trading arrangements is a key factor allowing the U.S. industry to remain competitive while investing in new technology. Although U.S. export sales have been very strong thus far in the 2021 marketing year, weekly shipments are lagging well behind the five-year average. For the 2022 marketing year, the NCC does see U.S. exports increasing to 15.8 million bales. When combined with U.S. mill use, total U.S. offtake would exceed expected production with ending stocks projected to fall to 3.1 million bales. If realized, that would represent one of the lowest U.S. stock levels in the past 20 years.

NCC economists see world production increasing to 122.6 million bales in 2022 due to higher acreage. World mill use is projected to increase to 125.9 million bales for the 2022 marketing year, which represents an all-time high for cotton demand. With expanded consumption in key importing countries, world trade is projected to increase to 48.3 million bales. World ending stocks are projected to decline by 3.4 million bales in the 2022 marketing year to 81.6 million bales, resulting in a stocks-to-use ratio of 64.8%.

There is a bullish sentiment for cotton prices in 2022. Prices are at the highest in a decade due to a tighter U.S. balance sheet, supply chain disruptions, speculative money flow, overall increases in commodity prices, and recent strong world cotton demand. However, more COVID-19 restrictions, a slow-down in world economic activity, and low man-made fiber prices could put downward pressure on cotton prices. Regardless of market developments, the NCC will continue to vigorously pursue effective farm policies/programs and trade agreements while opposing unworkable regulations to bolster U.S. cotton industry members’ competitiveness in the global marketplace.

The NCC’s 2022 Cotton Economic Outlook at www.cotton.org/econ/reports/annual-outlook.cfm offers more details on the global and cotton economies.


Gary Adams is president/CEO of the National Cotton Council of America.

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