The Cotton situation

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The Cotton situation
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UNITED STATES DEPARTMENT OF AGRICULTURE
Bureau of Agricultural Economics
Washington

CS-8 June 24, 1937


THE COTTON SITUATION -- -- ----
----* -- -- _---------- ___ _------ >----------- -- --~ --M--- --- ------ --- ---- 1

Summary
US. DEPCrO'RY

Spot cotton prices at the 10 markets were comparatively steady

in May and early June, but declined sharply in the second and third

weeks of June. The average of 12.25 cents in the week ended June 20

was nearly 2-3/4 cents below the peak reached the latter part of March.

Wiith indications pointing to the probability that domestic con-

sumption plus exports of American cotton will run well over 13 million

bales this season, the Bureau of Agricultural Economics estimated today

that the carryover of American cotton in the United States on July 31

will be about 4.4 million bales, or about a million bales less than the

carryover on the corresponding date in 1936. While total carryover

will be smaller, the supply of "free" cotton in trade channels will be

larger, since a much smaller proportion of this seasont s carryover will

consist of Government financed cotton.

Cotton mill activity in the United States continues very high,

but activity tended to decline gradually in May and the first half of

June. New orders have been running behind mill output since the middle

of March. Cotton textile industries in foreign countries as a whole main-

tained the high degree of activity which has characterized their operations

during recent months. Apparently the outlook is somewhat uncertain in

England, France and Japan, but Italian mills are more than holding the

improvement shown during the past few months.
j





- 2 -


World cotton prolluction in 193S-37 hbs been tentatively estimated as

30.9 million bales, and foreign production as 18. million bales, both record

highs.

DOMESTIC PRICES STEADY IN '::AY BUT DECLIIT IN JUNE

Spot prices at the 10 markets were relatively stable durin- "nay in con-
trast to the abrupt, rise in I:'rch and the rn.ther sharp decline i:-- Aoril. The
aver.?-e for the month of May was 13.12 cents, comoareL. with 13.91 in April,
14.15 in .':prch, and 11.56 cents in :.ay 1936. Prices remeine. com.niar.tively
steC/.y/ in the first few days of June, but declined sharply in the second and
third -'oeks of the :.vonth. The aver7:es for th.e .weeks ended June 5, 12 and 20
were 13.00, 12.39 nid 12.25 cents, respectively.

While mill activity and cotton consu.vttion continue 'ii..:h in this country
and throughout the ,orld as a'whole, the recent leveling off in domestic business
activity, the falling of new orders behind cotton mill output in recent months,
and the very low level of exports and forei:-.n cor.s,,'ition of Aaerican cotton as
co,-i)ared with most earlier ./ears h1-ve tended to nak:e the demand situation some-
what less favorable thpn a fe: months at-.o.

CARRYV0:R PROBABLY 1,000,000 B-LES SMALLER

Jith in.- ications pointing toward P domestic consurn-tion of A.ierican cotton
of about 7,800,000 bales and exports of about 5,500,000 b-les, it seems likely
that the stock of American cotton- in the United St-tes on July 31 will be about
4,400,000 bales, of whichc h nib.,ut 2,750,0o0 bales will be "free" cotton. On
July 31, 1936, the carryover of Anierican cotto.i in the United States was
5,324,000 bales, about 2,100,000 of v.hich wore in trade ch-nnels and the remain-
ing 3,200,000 bales were in the loan stock. In the 10 years ended 1932-33
carryover in the United States on July 31 r.vera!.ed 3,687,000 bales. Included
in this latter fi;-ure, however, are the'spot holdings of the ?ar.n Board in 1930,
1931 and 1932. The anticipated carryover of cotton in trade channels in the
United States at the end of the -resent season is i'bout the s-rie as the average
carryover in the 5 years earned 1929-30. In this latter period all of the carry-
over consisted of "free" cotton. In the 5 years ending with 1929-.70, however,
domestic consumntion nlus exports averr,'ed. about 15,000,000 bales, or nearly
2,000,000 bales rore than the anticiaxited totnl for this season.

The Co..rodity Cre.it Cor-oration announced on June 11 that between
February 1 and June 10, 1937, requc-ts for the release of 12 and 11-cent loan
cotton have been received for a totpl of a-.'-roxi -tcly 1,331,000 bales, at an
avera':e price of about 131 cents oer -,ound. About 1,650,000 bales now remain
in t""_e lo.-.n stock'. The quantities released in recent wee!-:s have been very
siLall, and the Cor-oration stated that no concession from the loan nrice will be
made during the -oeriod June 25, 1937 to Janwry 1, 1938. (The rminimnun 10-market
price, below which n-rice no cotton could be released under the -olan which has
been in cncratibn since iFebruary 1, was 12.75 cents. The market price -is been
less than this minimum since June 7.)


CS-8





-3-


EXPORTS IN MAY BELOW THOSE A YF.R EARLIER

Exports of 322,C000 bales of cotton from the United. States in MV-7
were 8 percent less than exports in May a year earlier. In the 10 months
ending with May, shipments totaled 5,087,000 bales compared with 5,519,000
bales in the corresponding months last season. In the 10 years ended with
1932-33, exports in May averaged 417,400 bales and exports in the 10-month
period averaged 7,213,200 bales. The smaller quantity exported this year,
both in May and in the 10-month period, as compared with the correspond-
ing periods in 1935-36 resulted from smaller shipments to the United
Kingdom, Germany and Spain.

The heavy movement of cotton from the leading foreign exporting
countries continues. Shipments from India in April amounted to 383,300
bales, or slightly less than exports in April 1936 but 44 percent more
than average exports for April in the 10-year period 1923-24 to 1932-33.
Exports in the 9 months ended April totaled 2,699,200 bales, a record
high for the period. Exports from Egypt dropped off in May compared with
earlier months this season and with the corresponding month in the last
5 or 6 years. This decline in exports in May, however, is reasonable in
the light of the extremely heavy shipments of the past 6 or 7 months.
Total exports of 1,679,600 bales for the season to date constitute a
record high. Exports from Brazil from August to the end of March totaled
608,723 bales, compared with.366,100.in, 193.5-36, 528,240 in 1934-35,
123,500 in 1933-34, and were the highest for any similar period on record.

TEE TEXTILE SITUATION

Domestic Mill Activity Declines Slightly
As Sales of Goods Continue to Run Below Output

The domestic cotton spinning industry tended to reduce operations
during May and the first part of June, .according to trade reports. Mill
sales of goods have been much below current output since mid-March. Prices
of goods tended to decline in May, and mill margins on standard unfinished
goods narrowed. The average margin in May of 17.66 cents was nearly a
cent lower than in April, although much higher than the margin of 11.62
in May 1936.

Mill activity is reported to be tending downward, but on the whole
the decrease in activity,is quite gradual, since some mills still have
a large volume of unfilled orders on their books. Large quantities of
goods continue to be shipped on old orders, and it is reported that retail
business in cotton goods has been better in recent months than in the
same period last season. However, in view of the protracted period during
which mill sales of goods have been less than current output, with a
consequent heavy reduction in the volume of unfilled orders, and in view
of the general leveling off in general industrial activity in the United
States, it is not unlikely that there will be a reductiJon in mill activity
and cotton consumption in the next few months equal to or slightly greater
than the normal seasonal decline.


CS-8




C-S-9


. 14-


European Mill Activity Continues High, But New Orders La_ J

The European cotton textile situation as a whole showed no material
change in May, but a -lull in new business ar/peared in several countries,
especially in the United Kingdom and France. While dullness is not unusual
at this time of the year, these developments are believed to be more than
seasonal. An important factor contributing to the decline in new orders is
believed to be the generally weaker tone of the raw cotton market. As yet,
however, there has been no marked decline in the generally satisfactory level
of mill activity.

United Kingdom.- In the United Kingdom a falling-off in buying
characterized most branches of the grade during May, although the volume of
unfilled orders is still large and mill activity continues at a high rate,
with no serious recession in sight. There is reported to be a general belief
that a volume of potential new orders is accumulating against the time when
the price outlook becomes clear. Consequently, neither spinners nor weavers
are as yet showing much disposition to make price concessions in order to in-
crease their volume of new orders.,

France.- With signs of a slackening in business during April, there has
developed in France a rather prolonged recession in trading in yarns and cloth,
and unfilled orders of both spinners and weavers have been considerably re-
duced. Manufacturers are complaining of increased foreign competition in the
colonies, as well as in France proper. The industry also is increasingly con-
cerned over the sharp rise in production costs which, from the standpoint of
foreign competition, is claimed to have offset the advantage which otherwise
would have followed the devaluation of the franc.

Germany.- Conditions in the German cotton textile industry showed little
change during May. Spinners and weavers were well occupied in most parts of
the country, with artificial fibers continuing to fill the large gap resulting
from a scarcity of natural fibers. According to the recent semi-annual report
of the Institute for Business Research, German, textile production as a whole in
1936 was about as high as in 1934 and 8 percent above 1935. In general, four
measures have been employed to maintain textile activity in the face of the
acute shortage of raw cotton: (1) Manufacturers have shifted over to producing
finer yarns, fabrics and knitted goods, which require less raw material. (2)
Stocks of textile raw material, semi-manufactures and manufactures have been
reduced. (3) Reclaimed textile material in 1936 provided a total of 270,000,000
to 331,000,000 pounds, or the equivalent of 623,000 to 692,000 bales of raw
cotton on a pound for pound basis. (4) Domestic agriculture in 1936 supplied a
total of 103,000,000 pounds of textile fibers compared with only 16,000,000
pounds in 1933. Synthetic fibers, rayon and rayon staple fiber, were produced
in 1936 to the amount of 220,000,000 pounds, or the equivalent of 461,000 bales
of raw cotton, compared with only 72,000,000 pounds or 150,000 bales in 1933-

Italy.- Reports from Italy indicate that the cotton textile industry of
that country is continuing to show improvement. Mill activity in Italy during
May was well up to the greatly improved levels of the early part of the year,
and further gains are expected in view of the large export sales at the favor-
able prices which Italy can quote in terms of the devalued lira.
lj Prepared largely from a report from Agricultural Attache Lloyd V. Steere,
at Berlin, under date of June 11,.






CS-s 5-

Russia.- Russian cotton textile equiprment, according to reports, is
inadequate for utilizing available supplies of raw cotton. Some sources indi-
cate that 3,210,C000 bales of cotton are to be ,rocessed in 1937 as compared with
2,546,000 bales in 1936. However, 1,700,000 new" spindles are believed to be
necessary in order to use the additional quantity of cotton provided for by the
1937 plan. This inability of the equipment of the Russian industry to meet the
demands put upon it may be one reason why in recent months significant quantities
of the present large Russiarn crop have been exported to England.

Jananes? and Chinese Consumrption Continue High Japanese
Outlook Somewhat Less Favorable

Jaran.- Yarn production continued very high during May, but it is re-
ported by the office of the Agricultural Commissioner at Shanghai that the cur-
rent situation contains some elements of weakness. Costs of production are
increasing with a consequent threat to Japan's present strong competitive
position in world markets. Furthermore, it is doubtful whether manufacturers
will be able to pass on the increased costs to domestic consumers in the form
of higher prices. To date, however, mill activity has been running very high,
and profits are large.

Imports of American cotton declined in May compared with April, but were
slightly higher then imports in May 1936. The decrease in imports of American
compared with the preceding month was partly seasonal, but it was also partly
due to a scarcity in the United States of those grades of American cotton which
are most in demand in Japan at the present time. Imports of Indian were larger
than in April, but slightly smaller than in May 1936. In the 9-month period,
September to May, imports of all cottons totaled 3,574,000 bales, compared with
2,857,000 in the corresponding period a year earlier, an increase of 25 per-
cent. While imports of American showed a small increase most of the increase
in the total was accounted for by larger imports of Indiai, Egyptian, Chinese,
Brazilian anid miscellaneous growths.

China.- Mill activity continued very high during May and the first part
of June. Many mills have a large volume of unfilled orders. Yarn has been sel-
ling rapidly and stocks are low. A rise in Government taxes on yarn about June
1 did not seem to have any immediate depressing effect upon prices or con-
sumption. Available information makes it seem likely that if present rates of
mill consumption continue, stocks of Chinese cotton in the interior will about
meet spinning requirements and provide for a moderate carryover. Arrivals of
all cotton at Shanghai in May totaled 150,(00 bales, of which 143,000 were
Chinese. Stocks in Shanghai public warehouses amounted to 139,000 bales, of which
133,000 were Chinese. While Chinese consumption continues to consist almost en-
tirely of domestic cotton, considerable purchases of Indian have been reported.
Imports and consumption of Ameri-'an cotton continue to be negligible in amount.

WORLD AND FTREIGN PRODUCTION IN 1936-37 EXPECTED TC BE A RECORD HIGH

It was pointed out in the May issue of the Cotton Situation that the
acreage and production of cotton in practically all of the important individual
foreign cotton producing countries are at or near a record high level.





CS-8


World production of all kinds of cotton in 1936-37 has been tentatively esti-
mated as 30,900,000 bales, compared with the previous estimate of 30,200,000
bales and last year's crop (1935-36) of 26,500,000 bales. Anticipated foreign
production of 18,500,000 bales is a new record high, and compares with the
1935-36 figure of 16,100,000 and the aver.?Ze for the 10 years ended 1932-33 of
11,200,000 bales. In the 10 years ended 19.32-33 production in the United States
averaged 14,400,000 bales, or about 3,L00,000 more than average foreign nro-
duction in the same period. In 1934-35 and 1935-36 foreign production exceeded
American by 4,500,000 nr.d 5,400,000 bales, respectively. Apparently, foreign
output in 1936-37 will exceed the estimated. United States crop (1936) of
12,400,000 bales by 6,100,000 bales.

The United States.- Reports from trade sources state that practically all
of the new crop in the United St-tes has now been planted, and that weather con-
ditions on the whole during recent months have been favorable for the planting
and early growth of the crop. The crop is now-entering-the period when
temperature and rainfall will determine the rate of increase in boll weevils.
The relatively dry conditions which prevailed during most of the month of May
throughout the Belt as a whole is considered by the trade to be favorable to
the crop. However, the ultimate yield, insofar as. it is affected by weevil
damage and other direct and indirect results of rainfall and temperature, will
depend to a larger degree upon weather conditions durinri the next 2 or 3 months.

A report on the acreage of cotton in cultivation in the United States
on July 1 will be issued by the Crop Reoortinc Board on July 8.

Fertilizer tag s.les in 8 cotton States, as reported by the National
Fertilizer Association, indicate that much more fertilizer is being used in the
South this season than- for several years past. Tag sales from December to the
end of M'ay totaled 3,909,600 tons, compared with 3,042,800 tons in the corre-
sponding period last season. These are the heaviest sales of fertilizer since
1929-30, when sales from December to May aggregated 4,304,700 tons. Since the
1920-21 season, the largest and smallest sales of tags in this 6-month period
were in 1927-28 and 1931-32, respectively, when sales amounted to 4,357,400 tons
in the earlier year and 1,781,600 tons in the latter year.

China.- A cablegram from the office of the United States Aricultural
Co:.Lmissioner at Shanghai dated June 14 stated that weather conditions daring
May and early June continue to be favorable to the new crop. In north China,
however, growing conditions are reported to be spotty, with the new crop gettingg
off to a poor start in some areas. Spring rains permitted an increase in
acreage, but deficient subsoil moisture in some regions has caused irre-ular
plant development. Growing conditions in the Shanghai erea have been favorable
to a high yield on an area considIerably greater than last year. Preliminary in-
dications point to a new crop acreage for all China about 10 percent larder
than the acreage for the -oast season. With average yields, the crop from this
acreage would approxim.qte the record high.production of the past year.

Russia.- It was pointed out in the Situation for last month that current
reports from Russia place the 1936-37 crop as high as 3,500,000 ba.les, but that
in view of the tendency in certain other seasons for early estimates of the
crop to be"in excess of that 'actually harvested and marketed, this Bureau is
making a preliminary estimate of 1936-37 Russian production at from. 3,000,000 to
3,250,000 bales.





CS-8 7 -

It is reported that problems of the third 5-year Plan (period ended
1942) are now being discussed in the U.S.S.R. Figures of from 5,700,000
to 8,300,000 bales have been .mentioned as possible cotton production goals
for the yerr 1942. These figures are tentative, of course, and they give
very little indication of what Russian production may be expected to be
in the next few years, but they do indicate that attempts will probably
be made to bring about further large increases in the Russian crop. It
should be noted, however, that the low per capital cotton consumption in
Russia. rjid the rapid increase in population suggest that any further
increase in Russian cotton production which may occur may be accompanied
by very nearly a corresponding increase in Russian consumption.

Ba.lkan countries.- Reports indicate that attempts to develop
cotton growing in the Balkan countries is meeting with considerable
success. Greece, Bulgaria, Yugoslavia, and Rumania have set up organi-
zations whose function it is to promote acreage expansion and improve
the quality of the cotton produced. In Bulgaria, Yugoslavia and Rumania
the Governments not only engage in educational and pr.-.,otional activities
but compel the local textile industry to buy the domestic cotton crop
from growers at a price higher than the world price. It is reported to
be the desire of these countries to ultimately achieve self-sufficiency
in cotton production. Prelimz-iary estimates of acreage and production
for 1936-37, as shown in the fcllowring table, indicate increases of
ner-.rly 250 percent and more Vthan 400 percent, respectively, over avera-ge
area and production in the 5-year period ended 1932-33.



Average 1928-.29 to : 19-6-37 (preliminary)
Country 1_____ 932-33 :4 3__peay___
: Are-i : Proiuction : Area : Procauction
: 1,000 1,000 bales 1, 000 1,000 bales
: acres of 478 lbs. acres of 478 lbs.

Greece ............. 46.7 16.4 138.0 58.0
Bulgaria ........... 14.8 4.3 72,0 29.0
Yugoslavia ......... 2.2 .5 5.0 1.0
Rumania ... ....... *: .2 .1 4.0 1.0

Total ...........: 63.9 21.3 219.0 89.0


All four of these countries are comparatively small both as
producers and as consumer of raw cotton. However, the r-cent increases
in their output, and the avowed policies of their Govern-ijts to promote
continued expansion constitutes, when co'-ined with the growirg output
of other individually small cotton producing areas, constitute a significant
addition to total foreign production.




UNIVERSITY OF FLORIDA



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