By Odyll Santos
In his final market outlook at the Beltwide Cotton Conferences in New Orleans, early this month, William B. Dunavant Jr. predicted the U.S. cotton industry will experience a good year despite low crop prices. Dunavant, chief executive of Dunavant Enterprises of Memphis, said the U.S. and the world will produce record crops, but demand also is expected to be significant.
Dunavant projects U.S. production at a record 22.8 million bales in 2004-05 following sizable crops in nearly all states, with major producer Texas contributing 7.45 million bales. He expects consumption to stabilize at about 6.25 million bales this season, compared to 6.49 million bales in the previous season. U.S. carryover is seen more than doubling to 7.9 million bales from last season’s 3.5 million bales.
For the worldwide crop, Dunavant sees production at 115.5 million bales and consumption at 104 million bales, both slightly above USDA’s estimates. World carryover is seen at 46.9 million bales, up from last season’s 35.5 million bales. While the huge U.S. and world crops will put pressure on cotton prices, demand from cotton users is expected to be strong. Dunavant projects U.S. exports at 12.2 million bales and noted that the U.S. currently has 8.75 million bales registered for export.
Export markets will be crucial for the U.S. cotton industry in 2004-05. China, particularly, is expected to be a major player, as its textile industry continues to increase cotton use and domestic supplies fall short of demand. Dunavant believes Chinese cotton production will be 29 million bales this season, with consumption of at least 36.5 million bales, resulting in carryover of 8.4 million bales. He projects Chinese imports at a minimum of 8.2 million bales.
“Currently, we think they have bought for import only 1.7 (million) to 2.0 million bales this season,” Dunavant said. “So China still has a lot of cotton to buy after the Chinese New Year. Hopefully the U.S. will be a major exporter to China during this time period.”
In the previous season, China produced 22.3 million bales, and consumed 32 million bales, Dunavant said. The country has increased production by nearly 7.0 million bales and consumption by 4.5 million bales in one marketing year.
Following China, Turkey and Mexico are the next largest cotton consumers. Turkey consumed 6.1 million bales last season and is expected to use 6.25 million bales this season, Dunavant said. He noted that the U.S. sold Turkey 1.46 million bales last season. Having already purchased 1.15 million bales, Turkey is seen reaching at least the same level this season. Mexico consumed 2.0 million bales last year and is expected to use about 1.95 million bales this year, most of it sourced from the U.S. Huge supplies of world cotton will put pressure on prices, and the weak U.S. dollar and strong euro are expected to keep prices at low levels, Dunavant said. He noted that March cotton futures were trading at 45.30 cents per pound.
Low prices in 2004-05 are expected to cause a decline in overall worldwide production in 2005-06. Dunavant sees world production shrinking to 103.4 million bales, consumption rising to 106 million bales, and carryover dropping to 44.2 million bales. U.S. production is seen falling to 19.5 million bales, domestic consumption down slightly to 6.0 million bales, exports up to 14 million bales, and ending stocks edging down to 7.44 million bales. Dunavant sees China reducing production in 2005-06 to 2 .75 million bales from 29 million bales, and Chinese consumption continuing to rise to about 38 million bales from 36.5 million bales. With a smaller domestic crop, Chinese imports are expected to increase to 10.75 million bales from 8.2 million bales this season.
Dunavant also expressed his concern about maintaining a sound U.S. farm program, which includes Step 2, a USDA program that makes payments to textile mills and exporters for using or exporting domestic cotton. The U.S. farm program has received substantial criticism from Brazil, Australia and cotton producing countries in West Africa. Dunavant said the program is vital to many companies in the U.S. textile industry and that it helps make U.S. cotton competitive in the world market.
Early in his remarks, Dunavant announced that after 19 years of providing market outlooks at the Beltwide, this was the final time he delivers such remarks. Dunavant will be stepping down as CEO of Dunavant Enterprises in June, though he will remain chairman of the company’s board.
