The Cotton situation

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The Cotton situation
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United States -- Bureau of Agricultural Economics
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UNITEDl STATES DEPARTMENT OF AGRICULTURE ...... '
Bureau of Agricultural Economics
*1: Washington u LPO3ITORY

OS-10 August 25, 1937


THE COTTON SITUATION


Summary

Spot cotton prices in the United States averaged 12.12 "cents in July

compared with 12.50 in June and 12.90 cents in July 1936. Prices moved dowrn-

ward during the last half of July and the first part of August. The aver3jes

for the weeks ended August 7, 14, and 21 were 11.09, 10.55, and 10.07 cents,

respectively. Major price-lepressing factors were: the opinion held by the

trade that the condition of the crop in the United States was much better

than average and the substantiation of this opinion by the August 1 crop re-

port, indications that cotton crops in s,,varal important foreign countries

would be as large as or larger in 1937-38 than in 1936-37, and the continued

downward tendency in mill activity in the United States. The average spot

price at the 10 markets for the 12 months ended July was 12.70 cents c-riipred

With 11.55 in 1935-36.

In the 1936-37 season, consumption of all cotton in the United States

totaled 7,944,000 veles, cr 25 percent rnore than in 1935-.36, and was the

largest utilization by domestic mills on record. Consumption of American

cotton amounted to 7,765,0OO bales compared with 6,219,000 a year earlier

and an average of 5,927,000 bales in the 10 years ended 1932-33. The 5,440,000

bales of American cotton exported this past season were 9 percent less th-in

exports in 1935-36, and with the exception of 1934-35, were the smallest ex-

ports since 1922-23.






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The August 1 report of the Crop Reporting Board indicates a probable

production of 15,593,000 bales for 1937-38, the largest production since

1931-32 and 26 percent larger than last year's crop of 12,400,000 bales. The

indicated production plus a world carry-over of Amjrican cotton on July 31 of

approximately 6,000,000 bales gives an indicated supply of American for this

season of about 21,600,000 bales compared with the 1936-37 supply of 19,400,000

bales.

With an increase of nearly 2,250,000 bales in the uppl,- of ArLmerican,

with carry-over of foreign cotton on July 31 apparently somewhat larger than

a year earlier, and with indications pointing to a large crop in foreign

countries, it seems almost certain that the world supply of all cotton in

1937-38 will be materially larger than in 1936-37.

Mill activity and cotton consumption continued to decline in the

United States during July and early Auguast. Conditions affectirn-g thc- cotton

textile industries in European countries were generally more f-.vorable in July

than in June. Mills were active in July in Japan and China, but business

undoubtedly has been greatly disrupted in recent weeks, especially in China,

by military operations.

PRICES IN UNITED STATES L07ER BUT AVEF'. FOR 193.-37 SEASO.
HIGHER MULTI IN 135-36

The averv.ge 10-market price for July was 12.12 cents. The high was
12.85 on July 9 and the low 11.10 cents on July 31. The averages for the weeks
ended August 7, 14, and 21 were 11.09, 10.55, and 10.07 cents, respectively.
On Augst 19 prices fell below the 10 cent levsl for the first time since
December 1933. The July avera-ge of 12.12 cents compares with 12.50 in June
and 12.90 cents in July 1936. Among the factors which have contributed to
price recessions during the past 6 or 8 weeks are: the opinion held by the
trade that the condition of the crop in the United States was much better than
average, indications that cotton crops in several important foreign countries
probably would be as large as or larger than in 1936-37, and the continued
dovniward tendency in mill activity in the United States. While the trade had
anticipated that the statuine-it of the Crop Reporting Board would indicate a





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large crop, the figure actually released was somewhat larger than the average
of trade estimates. *o doubt this substantiation 'of trade opinion and con-
tinued favorable weather conditions were largely responsiblee for the fact that
the 10-market price averaged approximately one-half cent lower in the week
ended August 14 than in the week ended August 7./

The average spot price at the 10 markets for the 12 months ended July
was 12.70 cents compared with 11.55 in, 1935-36, 12.36 in 1934-35, the low of
5.89 in the 1931-32 season, and the average of 17.65 cents during the 5 years
ended 1929-30. With the exception of July, the average monthly price for
every month during this past season was higher than the price for the cor-
responding month in 1935-36.
INCREASED USE OF FOREIGN COTTON DESPITE MAIITTL1ICE OF
PR*E-DEPRESSIOIT PRICE RELATI0IS3HIPS

Based on Liverpool prices for July, average prices of Indionii, Brazilian,
and Peruvian cottons were 83.3, 97.5, and 126.5 percent, respectively, of the
price of American cotton. These percentages were substantially u.ch:-t: d from
a month earlier. Egyptian Uppers at 142.4 percent of American M7Cdlir- were
much higher relative to American than a month earlier, and were higher relative
to American than in any month since Augulst 1927. T2,e increase in the price of
Uppers, expressed as a percentage of American, has been very rapid in recent
months. In October 1936 the ratio was 108.2 and as late as February 1937 it
was 112.1. The sharp divergence between the prices of American Middling and
Egyptian Uppers has come about as a result of a decline in thie price of
American and an increase in the price of Egyptian. The average percentage
for the last season of 119.0 compares vith 114.8 in 1935-36 and 108.8 in 1934-35,
but it is considerably lower than the average for most seasons during the 1920's.

Three types of Indian expressed as a percentage of two grades of American
averaged 79.8 during the 12 months ended July compared with 79.5 in the cor-
responding period a year earlier and 72.3 in 1934-35. The price of Brezilian
Sao Paulo Fair averaged 96.6 percent of American Middling in the season just
passed compared with 99.8 in 1935-36 and 97.4 in 1934-35. Ia the last 2 seasons
the prices of Ii.dian and Brazilian Cotton relative to the prices of American
have been about the same as their average relationship during the 1920's. These
types of India- anmd Brazilian cottons, especially Brazilian, are closely com-
petitive with American in foreign markets. hDuring the past 2 years they hnave
been consumed in much larger quantities than in earlier years and t.iey have re-
placed considerable quantities of American cotton in foreign mill consumption.
Their prices expressed as a ratio to the price of American, however, have been
about the same as in years when their utilization was considerably smaller.
This indicates that to the extent that there is an increased production of
foreign cotton similar in grade and staple to American, and to the extent that
spinners alter machinery and technique so that foreign cottons can be more
readily substituted for American, consistently larger quantities of foreign
cottons can be used to replace American without the prices of foreign cottons
being low compared with the price of American in world markets.





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UNITED STATES EXPORTS IN 1936-37 UITJSUALLY LOW EXPORTS FROM
INDIA, EG.PT, .LND BRAZIL ?2ACH INEW HIGHS


Domestic exports of cotton from the United States to all countries
totaled 5,440,000 bales in the 12 months ended. July compared.' with 5,9'72',800
bales in 1935-36, a decline of 9 percent. With the exception of 1934-35
this was the smallest volume of exports since 192I-23. In the 10 ,/ears
ended 1932-33, average exports amounted to 7,860,200 bales. Mc.st of the
decline as compared with 1935-36 resulted from decreased shipments to the
United ]:ingd,'., Germany, and Spain. Exports to the United Kingdom were
1,144,400 bales compared with 1,409,500 a year earlier. Germany took
649,700 bales compared with 765,500 in 1935-36. Less than 30C bales of
American cotton wore exported from the United States to Spain thIs past
season, whereas more than 200,000 bales were sent in 1935-36. Sirtaller
quantities than in the preceding season were ship.pc? to China, France, Bel-
gium, and miscellaneous European countries. Exports were larger to Japan,
Italy, and Canada.

In contr:-st to the small exports of cotton from the United Sttcs, the
movement of cotton from the principal foreign exporting countrio.; has ucon
unusually large. Exports from India in June were 316,000 bales or 2.7 per-
cent more than in June 1936, and 33 percent more than th.- avere for the
10 years ended 1932-33. Exports in the 11 months ended June totaled
3,362,800 bales, the largest volume of exports on record. Most of the
incro'ere in Indian exports of cotton in the first 11 months of this last
season over the corresponding period in 1935-36 was accoun.ted for by larger
shipments to Japan.

Exports of cotton from Egypt in the season ended July 31 ,;'ero
1,826,600 bales, an-. increase of 8 percent over 1935-36, 25 percent more than
the average for the 10 years ended 1932-33, and were the largest epc.rts
for any season on record. The largest absolute and percenta-i incr -'re
in exports to any one country occurred in the case of Jcn,,:- to which -.-
ports of 204,800 bnles in 1936-37 were almost twice as lru'g as ship'.nts
in 1935-36. Howeever, shipments to nearly all important mr-rk&ts fcr
E;-:ptian cotton, with the exception of the United Kingdon, ".erc considerably
larger than the 10-year average.

E:xorts from4 Brazil were heavy in May, the most recent month for
which export data are available. Shipments for all countries totaled
79,200 bales co-pared with 52,500 in M1-:y 1936 and 35,900 bales in ivla-y 1'335.
In the 10 months ended:May,' exports ar:.ounted to 741,800 bales compared -.-ith
471,700 in 1935-36, 603,500 in 1934-35, and 188,100 bales in 1933-34, ,Td were
the lar-ost for the period on record. Germany, Great Britain, Italy, and
Ja.-pan imported considerably larger amounts of Brazilian cotton in the first
10 months of 1936-37 than in the corresponding period of 1935-36.





WORLD CARRY-OVER OF AMIRICAN COTTON SMALLER IIICATED SUPPLY FOR
1937-38 SEASON NEARLY 2,250|000 BALES LARGER THAN, TIE 1936-37 SUPPLY
The -orld carry-over of Amnrican cotton on July 31 is preliminarily
estimated at 6 million bales, compared rith 6,955,000 on the corresponding
date a year earlier and 9,009,000 bales on July 31, 1935. This year's carry-
over of American is practically the same as the average of 6,022,000 bales
in the period 1923-24 to 1932-33.

Carry-over of American cotton in the United States on July 31 amounted
to approximately 4,400,000 bales compared. with 5,336,000 on Jul- 31 of last
year, 7,137,500 on July 31, 1935, and the 10-year average of 3,687,000 bales.
Included in the carry-over in the United States at the end of the 1936-37
season were about 1,700,000 bales of Government-financed cotton, making the
supply of cotton in trade channels about 2,700,000 bales. On July 31, 1936,
stocks of American cotton in the United States amounted to 5,336,000 bales of
which about 3,200,000 -7ere in the Government-financed loan stock; the remain-
ing 2,100,000 bales were in trade chan--nels. Averas.o carry-over.for the 10
years ended 1932-33 includes some- spot holdings of the.Farm Board in 1931 and
1932. In the r. years ended 1929-30 stocks of American cotton in the United
States averaged 2,628,000 bales or about th. same as carry-over in trade
channels at the '.nd of the past season. In the 5 years, ended 1929-30, how-
ever, domestic consumption plus exports of American cotton averaged about
17,000,000 bales, or about 1,750,000 mor,: than consumption plus exports in
the 1936-37 season.

The indicated new crop of 15,593,000 bales as reported by the Crop Re-
porting Board, as of Auguzt 1, plus the world carry-over of approximately 6
million bales, gives an indicat':d supply of American cotton for the 1937-38
season of 21,600,000 bales, an increase of 2,250,000 or 12 percent over actual
supply in 1936-37. If thj crop turns out to be as large as indicated, the
-vorld supply of Am-rican will be tVie largest since 1933-34, more than one
million bales larger than the 1923-24 to 1932-33 average, but still consider-
ably smaller than the huge supplies in 1931-32 and 1932-33 of 25,965,000 and
25,963,000 bales, respectively.

The increase in the supply of American cotton this season compared with
last probably will be accompanied by a still larger increase in the 7orld sup-
ply of all cotton, since carry-over of foreign cotton into this season is be-
lieved to be larger than a year ago and indications point to a 1937-38 crop in
foreign countries as lXurge as or larger than in 1936-37.

COTTON CONSUMPTION BY DOMESTIC MILLS DECLINING,.BUT 1936-37 TOTAL A RECORD HIGH

Mills in the United States consumed S',,,000 bales of all cotton during
The month of July, or 4 percent less than the 607,000 bales utilized in July
1936. With the exception of July last year and July 1933, however, consumption
in July this year was higher than for any other corresponding month.

In the 12 months ended July, domestic mill consumption amounted to
7,944,800 bales, which was 25 percent larger than the 6,351,000 bales used in
1935-36, 29 percent more than the 6,182,000 bales consumed on the average from
1923-24 to 1932-33, and was the largest consumption in history. Most of this


CS-10


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record breckin- consumption was accounted for by American cotton, utilization
of which amounted to 7,765,000 bales compared with 6,219,000 in 1935-36, and
the lO-yea.r average of 5,927,000 bales. '

Mill activity in the United States in July and the first part of August
continued the gradual downward tendency which has been present during the past
2 or 3 months. Mill sales of goods continued to run substantially beLind mill
production according to trade reports. While many mills still held a consid-
erable volume of unfilled orders, the total quantity of unfilled orders held
by the industry as a whole has declined greatly since early in the spring when
mill production first begin to exceed mill sales. -Indications seem to point
toward a further slackening in mill activity and cotton ccnsumntion in the imme-
diate future. If industrial activity continues to expand, the demand for cotton
goods will increase. The extremely large output of cotton textil-s during this
last season, however, makes it seem unlikely that a higher level of industrial
production in 1937-3S than in 1936-37 would mean a proportionately increased
demand for cotton. Of course, increased world supplies of all cotton, and
especially American cotton, will tend to expand United States consumption, but
this would be effected through a lower price for raw cotton.

GiETRAL POSITION OF EURTOPEAJN COTTON TEXTILE INDUSTRY TIVP -OVTh- SOCM-THAT IN JULY

United Kingdom.- Sales of goods by British mills were lsccs thar. mill out-
pu1 during July and the first part of August. No doubt part of the hesitation
in -lacinr orders for cloth and yarn was due to the weakness in raw cotton
prices. There are several important underlying factors favorable to a contin-
ued high level of cotton consumption by the British cotton textile industry.
Amrongothem are a still substantial. backlog of orders with manufacturers, a high
level of domestic purchasing po-wer as a result of buoyant industrial activity
and a larger volume of exports of cotton piece goods anl yarn during June than
in any June for several years past.

Germany.- Retail demand for textile goods in Germanv remained strong
and the general situation was satisfactory within the limitations imposed by
the scarcity of raw materials. Retrorts indicate that advanced showing of new
autumn and winter goods show a definite trenl toward an increased use of arti-
ficial and substitute fibers. Private sources report that the "production of.
rayon staple fiber is continuing to rise at a very rapid ra:e, anJ continued
prr.-ress is beirnu made in perfecting the technique of its production and use.

France.- Rather unsettled conditions in France during June have been suc-
ceeded by a better outlook in July. There has been a small recovery of business
in yarn and fabrics and a rmod.erate increase in mill activity.

Italy.- Conditions continued favorable in Italy. During most of July,
however, cotton manufacturers and merchants were disturbed ty the failure of
Italian authorities to permit the regular transfer of currency in payment for
arriving shipments of raw cotton. It is believed that these- difficulties are
only temporary and that they have been due to the piling up of demand for foreign
currency as a result of the heavy importation of various products, including
wheat, in the first half of 1937. Spinning and --caving mill activity is now
about 20 percent above the average for 'the year 1937. Imports of raw cotton




CS-10


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during the first half of 1937 were practically three times as large as in the
first half of 1936, and exports of cotton products were several times those of
the first half of last year.

MILL ACTIVITY AID COTTON UTILIZATIO IT AT HIGH LEVELS IN JAPAN
AND CHINA DURING JULY PRESENT COIDITIOiS AITD PROSPECTS
FOR FUTURE OBSCURED BY MILITARY OPERATIONS I/

Japan.- Production of cotton yarn in Japan during July amounted to
339,371 bales of approximately 400O pounds each. This is the largest output of
yarn in any July and is the second largest output in any month. The record
high production was 3h51,460 bales in June. It is impossible to determine now
what effect the present difficulties between Japan and China will have upon the
cotton textile industry of Japan.

China.- Arrivals of cotton in Shanghai were light during the month of
July. Stocks of cotton on hand were moderately large and cotton prices de-
clined. Stocks of yarn remained small and mills held a large volume of unfilled
orders. The Japanese mills were reducing operations because buyers failed to
take delivery of goods.

The situation in July, however, gives little indication of what condi-
tions are at present. The Chinese cotton manufacturing industry is concentrated
to a considerable exten. at Shanghai and at Tientsin. Both of these areas are
the centers of larg,. scale warfare, and it seems likely that the production of
cotton goods along with almost every other form of economic activity has been
greatly disrupted. It may be that the present conflict will deal a blow to the
Chinese industry from which it will take a considerable time to recover, especial-
ly if the war turns out to be a protracted one.

WORLD PRODUCTION THIS YEAR APPARElITLY WILL BE LARGER THAN IN 1936-37

The United States.- The new cotton crop in the United States was indicated
by the Crop Reporting Board as of Augusto 1 as 15,593,000 bales of 47S pounds net.
A crop of this size would be 25.8 percent larger than last season's production
of 12,399,000 bales, 6 percent above the average for the 5 years 1928 to 1932,
and the largest production since 1931-32. This indicated production is based on
an area of 33,429,r00CC acres (acreage in clutivation less 10-year average abandon-
ment) and a prospective average yield per acre of 223.3 pounds. If this extreme-
ly high yield materializes it will be 25.7 pounds higher than the yield in 1936-
37 and the highest yield per acre ever recorded for the United States. The
next highest yield was in l9q when the final yield was 223.1 pounds per acre.
Tne average yield in the 10 years ended 1932-33 was only 169.9 pounds.

The only important producing States in which the indicated yields for
1937 are less than the actual yields of 1936 are: Mississippi, South Carolina,
and California, w-7here the indications for this year are 275, 255,and 475 pounds,
respectively, compared with 305, 279, and 574 pounds in 1936. The yields in
these States were especially large in 1936. Every cotton producing State showed
an increase in indicated output over actual output last season. The largest
individual increase was one of over 200 percent in Oklahoma -Where drought re-
sulted in a very small crop in 1936. The next largest incraace was 47 percent
in Texas. The smallest increase in production indicated for any of the
lI_/ Prepc-red partly from cables received from Agricultural Commissioner Dawson
at Shanghai under date of August 11, 12, and 22.




UNIVERSITY OF FLORIDA

3 1262 08900 4377
CS-10 S -

oprincipal" producing States -,as an increase of less than 1 percent in Missis'sippi.

India.- The first estimate of Indian acreage, excluding Burma, places
the cotton area on August I-at 15,225,000 acres compared with 15,259,000 at the
same time last year. At- the same time last season Burma had 519,000 acres bf
cotton. If her cotton area should be the same this season as last, total Indian
acreage planted up to August 1 in 15437-38 would be about the same as in 1936-
37. On the average during the 10 years 1923-24 to 1932-33, 57.6 percent of the
total acreage for the season has been planted by August 1.

China.- The weather in China during the month of July is reported to have
been some-.'hat dry for cotton but in general croo prospects are still very good.
A recent radiogram from Commissioner Dawson at Shanghai places probable Chinese
production in 1937-38 at approximately 4,400,000 bale:, of 478 pounds. However,
it is possible that a continuation of the present drynes:. or other unfavorable
growing conditions or the effect of military operations will result in the crop
actually harv. sted being somr.what smaller than the present forecast.

Brazil.- The first official estimate of the 1937-39 production of cotton
in northern Brazil is for a crop of one million bales of 47- pounds each. The
estimated crop represents an increase of about 28 percent compared with the
first official estimate of the 1936 crop, but an increase; o0" 61 percent over
actual production last year in northern Brazil. The present estimate is based
upon the assumption of a continuation of favorable climatic conditions and an
absence of serious insect damage up to the harvesting period. Last season the
first official estimate of 312,0&C0 bales was reduced to 644,000 bales in the
final official estimate. The 1935 crop in northern Brazil amounted to 326,000
bales, the 1934 crop to 782,000 bales, and the 1933 crop to 495,000 bales. It
is still too early to estimate the total 1937-38 crop in Brazil. Southern Brazil
does not plant its crop until September and October and it is not harvested
until March and April. The second official estimate places last season's crop ;,
in southern Brazil at 1,068,000 bales.

Cotton production in Bra-il has increos-d rapidly in recent years. In
the 5 years ended 1932-33, production averaged less than .Du,OLO bales annually.
On the basis of estimates available at the present time the total crop in both
northern and southern Brazil in 1936-37 amourt.;d to l,71?,0'0 bales 2omared
with 1,765,000 in 1935-36, 1,359,000 in 19534-35, and 1,014,000 in 1933-34.

Russia.- Weather during July ir reported to have been favorable to the
development of the Soviet cotton crop, although cultivation of the cotton fields
was lagging somewhat behind plans. Strictly comparable data on cultivation are
not available for last year, but it appears that the rate at which cultivation
is taking place is about the same as last year.

E.yt.- Trade reports indicate that the 1937-38 crop in Egypt is making
good progress upon an area whiich has been estimated by the Egyptian Government
at 2,053,000 acres. As was pointed out in the Cotton Situation for July, this
is an increase of 15 percent over the area of 1,781,000 P.crcs in 1936-37. The
first official estimate of production will be released by the Egyptian Govern-
ment the first Monday in October.




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