The Cotton situation

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The Cotton situation
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United States -- Bureau of Agricultural Economics
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UNITED STATES DEPARTMENT OF AGRICULTURE ""
Bureau of Agricultural Economics '
,1 I ,- -. | .T< i-!
Washington

CS-14 December 28, 1937


THE COTTON SITUATI ON


S nmary

Spot cotton prices at the 10 markets have strengthened slightly in the

past 3 weeks, averaging 8.36 cents for the week ended December 24 compared Ath

7.92 cents for the week ended December 4. The 10-marknt average was 7.84 cents

in November; this was slightly lo'.wer than the October average and more than 4

cents under November 1936.

Continued prospects for a record high production of cotton in both the

United States and in foreign countries and a downward tendency in general

economic conditions and cotton nill activity, especially in the United States.

have been important price-depressing factors. At least two factors have

operated to support prices, the Bureau of Agricultural Economics states. Large

quantities of the American crop have been going into Government financed stocks

rather than into commercial channels, and prices for many of the leading inter

nationally traded raw materials have steadied in the past 3 or 4 weeks, follow-

ing an almost continuous downward movement since last spring.

World cotton consumption during the last few months has failed to show

the seasonal increase which generally takes place at this time of year. Mill

activity continued to decline in November and the first half of December in

the United States. In England and other important European countries the pro-

duetion of cotton goods tended to recede somewhat from recent high levels as a

result of an extended period during which sales of goods have been below mill






CS-14 2 -

output. Mill activity is still high in Japan, but a shortage of raw material

is expected to curtail activity in the near ifuiture unless a greatly increased

volume of raw cotton imports is permitted. Military operations continue to

cripple the cotton spinning industry in China.

With over 4,100,000 bales of the new crop reported by the Commodity

Credit Corporation to be in the loan stock up through December 23, total Govern-

ment financed stocks are now in excess of the record high of 2-1/2 years ago.

According to the December crop report, the 1937 output of American

cotton is estimated at 18,746,000 bales of 478 pounds. This is equivalent to

approximately 18,300,000 running bales (allowing for the city crop). The

prospective supply for the 1937-38 season of over 24,500,000 bales is 5,200,000

more than last season's supply.

Military activities and unfavorable weather conditions for harvesting

have sharply reduced the prospective 1937-38 Chinese production. The crop now

is tentatively estimated at 3,500,000 bales compared with the latest previous

estimate of 4,400,000 bales.

DOI'.ESTIC PRICES

Recent pot prices the lowest for corresponding periods since 1952

Spot cotton prices at the 10 markets averaged 7.,R4 cents in November
compared with 8.14 in Octcber and with 12.06 cents in November 19356. Prices
strengthened slightly during the first 5 weeks of December, despite an in-
crease of nearly a half million bales in the indicated 1937 United States
production. Prices of Middling 7/8 inch for the weeks ended December 4, 11,18,
and 24, were 7.92 cents, 7.98 cents, 8.20 cents,and 8.36 cents, respect-
ively. These prices are the lowest for this period of the year since 1932.

Important among factors which have caused prices to remain low during
recent months, have been the generally favorable weather conditions for the
maturing arid harvesting of the largest domestic crop in history. This, to-
gether with another record high crop in foreign countries, gives an indicated
world production and supply of all kinds of cotton for 1937-38 which is by
far the largest on record. Other price-depressing factors have been the






CS-14 -


downward tendency in general economic conditions and cotton millactivity,
especially in the United States, and a continued low level of prices for most
internationally traded ravw materials. Prices have been supported to some
extent, however, by the movementt of large quantities of new crop cotton in
the United States into Government financed stocks and by the recent steadiness
in the prices of many internationally traded commodities after an 8 months'
decline.


Average prices at the 10 markets


Season. )ea
Seaso : : : ,Season: : : : :Season
be- :be-
:Sept.:Oct. :Nov. :Dec. : aver-: :Sept.:Oct. :Nov. :Dec. : aver-
ginning : .. a innn. : : age
Aug.l: : -_ : Aug.l

:Cent- C.-rit, C rnts C-nts Cents Ce nts Cets t Cent S CentS Cents

1928-29:17.72 1l.46 18.70 19.07 18.67 :1933-34: 9.19 9.16 9.65 9.87 10.81
1929-30:18.01 17.62 16.75 16.64 15.79 19Z4-35:12.,95 12.40 12.46 12.60 12.36
193C-31:10.15 9.82 10.09 9.16 9.61 :1935-36:10.48 10.96 11.77 11.70 11.55
1931-32: 5.85 5.75 5.95 5.78 5.89 :1956-571:2.05 12.07 12.06 12.60 12.70
1932-33: 7.40 6.37 6.03 5.72 7.15 :1937-58: 8.72 8.14 7.84 /8.03


_/ Average of Decar..ber 1-18.


Government financed cotton mounts

Growers are pled:irng their cotton for Governrent loans in large vol-
uxme. Accc-1.J.ng to the Cornmodity C2edit Corporation, 4,115,000 bales were
in the loan stock on December 23. It is reported that r!m-bers of the cotton
trade in general believe that from 5 million to 7 million bales will r- into
the loan stock. If this should be the case, loan cotton from the new crop
plus the apprc-irately 1,670,000 bales from previous crops still held by the
Cormodity Credit Corporation, would result in Government financed stocks of
spot cotton at the end of the present season being by far the largest on
record. Total old and new crop cotton in the loan stock on December 23 was
somewhat larger than the previous peak for Government held spot cotton
reached in April 1935.






CS-14


Stocks of Government financed spot cotton on specified dates

End of month Running bales : End of month Running bales

1933 1936
July 1,126,302 Jan. 5,095,393
1934 July 3,237,134
Jan. 4,003,890 : 1937 -
July 3,002,219 Jan. 3,018,355
1935 July 1,665,134
Jan. 5,531,094 Dec. i1/ 5,800,000
Apr. : 2/ 5,656,147
July 5,089,066

l/ December 23. 2/ Previous record high.


DEMAD AMTD C01ITSUMPTION

World mill activity fails to show seasonal increase

During the 3-month period from August 1 to October 31 world consumption
of all kinds of cotton was about equal to consumption in the corresponding
period a year earlier, according to the New York Cotton Exchange Service*
World utilization of American cotton was slightly smaller than a year earlier.
while consumTption of foreign growths was a trifle larger. Consumption of
American cotton in foreign countries was some.vhat larger than in the first
quarter of last season, but the gain in foreign spinning of American cotton
was more than offset by a decline in the United States. World cotton consumption
generally shows a seasonal increase from August to October, but no increase has
been evident this year. World utilization of American cotton was slightly
smaller in October thlan in August. Consumption of foreign cotton was larger,
but not in proportion to the usual seasonal increase. During the early part of
last season world mill consumption of both Americni end all cottons was expand-
ing rapidly.

Domestic mill activity and cotton consuryptio- continue to decli-io

Consumption of cotton by mills in the United States amounted to 485,000
bales in Novenber, a decrease of 23 percent compared with November 1936. In the
4 months ended November, utilization totaled 2,217,500 bales, or 11 percent less
than in the corresponding period a year earlier.

The downward trend in mill operations during recent months, contrary to
the normal seasonal movement at this time of year, has been in response to an
almost continuous decline in mill sales of goods, unfilled orders, and mill
margins. The mill situation showed some improvement in the second and third
weeks of Decermboer from the standpoint of the ratio of mill sales of cloth to
current mill output. The reversal of the tendency for mill output to exceed
orders and sales was partly due to an increase in sales and partly to a further
curtailment in mill operations. It seems reasonable to believe that the moderate


- 4 -






CS-14


increase which took place in sales of cotton goods was in response to- the
very low level of gods prices and the recent strength in raw cotton prices.
Manufacturers' margins, however, were still declining in the first part of
December, and an additional restriction in mill output is taking place,
according to the New York Cotton Exch'.nge Service. It is reported that
cotton consumption in December probably will be a third lower than in
December 1936.

Domestic mill consumption of all kinds of cotton in specified
months and seasons

Seac.son : : : Total
beginning : Aug. : Sept. : Oct. : Nov. : Dec. : for
____:Aug. : season
: Bales I/ Bales I/ Bales I/ Bales I/ Bales I Bales I/
5 yrs.1928-29
to 1932-33 : 453,449 477,722 532,439 499,061 449,469 5,892,658
1933-34 ........: 588,902 499,482 504,055 475,247 347,524 5,700,253
1934-35 ........ : 418,941 294,696 523,032 480,081 417,344 5,360,867
1935-36 ........: 408,325 450,547 552,840 512,312 499,773 6,351,160
1936-37 ........: 575,014 629,727 651,080 626,695 692,921 7,944,803
1937-38 ........: 604,380 601,837 526,464 484,819

i/ American in running bales, foreign in bales of 500 pounds.

Margins between average price of raw cotton per pound and wholesale
price of unfinished cotton cloth (17 constructions) 1935-36 to date

Year Aug. :Sept.:Oct. Nov. :Dec. Jan. Feb. 1.:ar. Apr. Mlay :Jane July

1935-36:11.61 12.87 13.31 12.80 13.02 13.70 13.26 12.78 11.96 11.62 11.90 12.72
1936-37:13.72 14.03 14.88 16.60 17.70 18.22 17.86 17.84 18.58 17.66 16.48 15.59
1937-38:15.14 14.38 13.56 12.79


Outlook for foreign mill activity unfavorable

Europe 1/-Conditions in the cotton textile industries of Europe as a
whole were less favorable in November than in the preceding months this season,
and the outlook was less satisfactory than in November of last season. In
the United Kingdom a continuation of the tendency for mill output to cxcced
new orders and an accumulation of stocks of yarn and cloth caused spinning
and weaving activity to recede somewhat from the high levels which have prevail-
ed during the past year. French mill activity is reported to have been lower
in November than in November 1936, and prospects continue to indicate a further
reduction in mill activity and cotton consumption. Similar conditions exist
in several of the smaller continental countries including Belgium, Czechoslovakia,
and Austria.
i/ Prepared largely from a report received from Agricultural Attache Lloyd V.
Steere at Berlin under date of December 7.


- 5 -






CS-14


Domestic consumer demand for cotton textiles is reported to be
expanding in Germany, but mill output is only slightly larger than a year ago.
It is possible that the production of cotton goods will increase somewhat
during the next few months as a result of larger supplies of raw materials.
Imports of spinning materials (raw cotton, cotton waste and regenerated
cotton) 7ere about 25 percent larger in the 3-onth period from August through
October than in the corresponding months a year earlier. Imports of cotton
from the United States so far this year have been somewhat larger thin in
1936. Efforts continue to be made, however, to increase the production of
rayon and rayon staple fiber as a substitute for cotton, and further re-
ductions hove occurred in rayon prices. Everything considered, it does not
seam likely that increased consumer purchasing pow-er and demand for cotton
textiles in Germany will result in a proportioznrte expansion in mill activity
and output, cnd a large part of any increase which takes place in textile
mill consumption probably will be represented by an increased utilization of
rayon staple fiber.

Orient a/- Information on conditions in the cotton textile industries
of Japan and. China is rather limited, but apparently disturbed conditions con-
tinue to rrev.il in the industry in both countries, especially in China.
Tapanese mill activity, cotton consumption, and production of 'arn and piece
goods have been at peak levels up until recently. Importations of raw cotton,
however, have been greatly restricted, ar-d stocks of cotton in Jxpan are
believed to be very low. ILargely as a result of this shortage of raw material,
mill operations have tended to decline somewhat duris-g the last few weeks,
and =uO.oubtedly they will decline consider ablj farther in the near future
unless permits are granted allowing the importation of largc quantities of
raw cotton*

The rate of cotton consumption in China is believed to be only a small
fraction of that which pr-"2il}i previous to the comuenccment of hostilities.
Some mills in the Shc.ghc area are expected to reopen. in the near future if
conditions beccr-e rcra sjltlr, but at the present time rill activity in
Shanghai is rE-7rted to b- r-l'y about 20 per:,ent of capacity. About 40 per-
cent of the s-: a t Tuientsin axid 25 pe-cent at H!-nkow are in operation, and
at Tsingtau and. 'J- 'i- no .,ills are belioveC, to be rur-nning. Foreign purchase's
and imports of foreign cotton are negligible.

Prices of Americ-qn relative to foreign cottons at Liverpool favor an
Increased cou. lrtion of Americpn cotton in foroi-n countries

Prices of Anerican cotton at Liverpool have been much lower relative
to prices of foreign than in any corresponding period in recent years. This
should tend to cause spinners to substitute knerican for foreign gro=m cottons.
Apparently this has been taking place to some extent. Forwardings of American
cotton to mills outside the United States,in roce:it wveecks, have been considerably
larger than in the same vreeLs last season.

-2 Prepared partly from cables received from Agricultural Commissianer Dawson
at $hangnni under date of Deocember 13 and 14.


- 6 -






CS-14


There is some question as to whether or not the present relative prices
for American and foreign cotton are due to relative demand and supply conditions
for American and foreign crops which will prevail throurhnut the season as a
whole. It is known that cotton in some countries, notably India and Egypt,has
been harvested late and has moved into trade channels rather slowly. During
the remainder of the season relative prices for American and other cottons may
be affected to an important degree by the moven.ent of foreign crops into cam-
mercial channels in large volume and by the impounding of large quantities of
American cotton in Governrment financed stocks.


Ratio of prices of specified foreign cottons to price of
American Middling at Liverpool


Aug. Sept.
3 types of Indian


Oct. INov. Dec. Season


ex-ressed as a percentage


of 2 types


5-year av.
1928-29 to


1933-34
1924-35
1955-36
1956-57
1937-38


________________American _________


76.9

78.8
67.1
76.1
77.8
85.7


77.5

78.7
66.2
76.5
79.3
85.1


79.0

78.4
64.8
81.6
78.6
85.2


80.8

77.6
67.6
84.4
78.9
87.9


80.9

75.4
70.0
84.1
79.1


79.0

74.0
72.3
79.5
79.8


5-year av.
1928-29 to


Egyptian Uppers as percentage of American


1932-33 :
ft


19533-34
1934-35
19535-36
1956-57
1937-38


120.4

121.6
104.3
112.6
118.3
142.2


122.2

118.2
103.1
114.4
109.9
133.8


117.7

115.5
105.2
109.4
108.2
130.4


116.9

111.6
107.6
115.0
109 o1
15o 6


115.9

112.6
109.3
119.0
109.6


fiddlingg

118.9

110.8
108.8
114.8
119.0


: Brazilian Sao Paulo


5-year av.
1928-29 to 1932-33


1933-34
19574-35
195 -56
1936-57
1957-58


96.2

101.4
96.5
98.3
95.7
96.6


96.4

102.9
97.0
98.4
95.6
98.1


as p1erccr.t 'eC of


97.2

102.4
96.4
100.0
96.4
93.6


97.7

101. 9
96.2
101 .4
97.2
100.0


Sfic an i *..fdlir ;


98.4

101.3
93,1
9D. 1
102.2
96.7


97.7

98.8
97.4
99.8
96.6


The outlook for exports and foreign consumption of Lmerican cott-n is
conpli'.-ited by the fact that so far this season consummation of Aercic;- cotton
in Japan has been very large relative to imports, ,', ereas in Fzrope iT-ports of
American undoubtedly have been considerably in excess of mill consumption, and
there has been some replenishment of stocks which have been very low duirirn:
the past 2 or 3 years.


Year


Ameri c an


- 7 -






Cs- 14


- 8 -


Exports of cotton from the United States so far this season have been
only slightly larger than in the corres-onding months 1-st year. Shipments
to Europ.an countries have been much larger tnan in 19. but exports to Japan
have been only about one-eiehth as large. F-xnorts to Europe probably hive
been somew-hat lar-er tharn Turopean consiumption of Am-nerican cotton. Mill con-
.'ilmption of American cotton in Japan, ho-ever, has been much larger than im-
por--s. Apparently, with the outlook for the European cotton textile industry
bec-ni'.. somewhat less favorable, cny increase in the rote of exports of cot-
ton from the United States during the remainder of the present season will
depend upon the extent to which Japanese import restrictions are relaxed so
as to permit a larger importation of American cotton by that cormtry. Data
are not available on imports of other kinds of cotton by Japan during recent
months, but it is beli-ved that import restrictions have resal] ted in takings
of foreign cotton being restricted to approximately the same extent as Ameri-
can. (See table, pa.;e lo).


PRODUCT ON


Indicated U..i telj States tr! L he e lar -est in h i _qtor.-

According to the Crop Reporting Board the indicated production of cot-
ton in the United States on December 1 was 13,746,000 bales of 478 pounds.
This is an increase of C3,OOO bales over the UIovember estimate. This com-
pares with 12,399,000 bales harvested in 1936, l0,639,OnO in 1935 and an aver-
a-e for the 5 seasons 192-3-32 of 14,667,000 bales. The previous record crop
was 17,978,000 bales in 1932 6. The indicated yield per acre of 2b64. 6 pounds is
by far the largest ever recorded. This season's output (allowing for the city
crop) is the equivalent of approximately 1,3-00,000 running bales, and gives
a prospective world supply of Am~rican cotton of 24, 55,000 running bales.
This is 5,200,000 more than last season's svrpply and only abo'.t 1,600,000 bales
less than the rerrd high inupyly of 1932-33. This, together wlth the record
hir supply of foreign cotton, gives a world ?up7ly of all cotton for the 1937-
38 season rtuch lar-er than the previous record high of 1936-37.

r'n, .:'-libl .n r ti -.n in i c e e L" r rro pc't-ve laX=
in couner f':ji. jsa. s

CM-1.. Thr; 1937-38 :rol- in China previously estimated at 4,4o,,000
bales is now tentatively placed at about 3,500,000. This material reduction
in th. size of the crw, hrs been due to unfavorable weather fcr harvesting in,
northern China and military operations both in northern China end the Shanghai
arfa. In spite of this large decline in crop prospects, however, the much
heavier proportionate reduction in Chinese mill consumption makes it certain
thLat (hirnese cotton available for export and carry-over into the next season
will be murch larger than average. However, the disruption ir. both the foreign
trade and the internal commerce of China, the impoverishment of .he country,
and the probability that domestic mill consumprtion will not return to its
previous levels for qi.ite some time to come, make it seem likely that a con-
siderable increase will take -Dla"c in Chinese hand spinning and weaving.






cs-14


-9-


India. The third estimate of the area planted to cotton up to December
1 places the acreage at 24,276,000 compared with 23,420,000 acres at the same
time last year, an increase of 4 percent. On the average during the 10
years ended 1932-33, 94 percent of total acreage for the season had been
planted by December 1. The first estimate of Indian production is for a crop
of 4,565,000 bales of 478 pounds each, which compares with the revised first
estimate of 4,49 ,000 bales in 1936. Last season, however, subsequent esti-
mates raised considerably the figure for Indian production, so that the 1936-
37 crop was finally placed at 5,300,000 bales. Hence, while the first esti-
mate of 1937-39 Indian output is slightly larger than that made at the same
time last season, it is somew-hat smaller than the final estimate of the 1936-
37 crop.

bRussia. Production in 1937-39 is Expeted to be larger than in 1936-
37, but it is reported that the harvesting of cotton is late and that losses
due to improper picking, storing, and handling are comparatively large this
season. It was pointed out in The Cotton Situation for September 28 that
The upward trend in cotton production in Russia in recent years apparently
was due almost entirely to rapidly increasing yields per acre, since no sig-
nificant change in acreage had taken place since 1932. Recent reports state,
however, that actual acreage has been considerably increased on collective
farms during the past few years, but that by reporting production on a
smaller acreage they have been able to claim the special prizes and premiums
-hich have been offered for increased yields per acre. It is not known how
important this "hidden" acreage has been, but reports state that the matter
is being investigated by the authorities.

Bra_]zi__. Prospective 1937-39 production in northern Brazil is placed
at 868,000 bales of 479 pounds, compared with the latest previous estimate
of 1,037,000 bales. In spite of this reduction in crop prospects, however,
if the actual crop turns out to 1e as large as that indicated at present, it
will be the largest on record.

EQ The second estimate of Egyptian production is for an outturn
of 2,282,000 478-pound bales. The crop in 1936-37 amounted to 1,SS7,000
bales, and was the largest on record up tc that time.

Argentina. Acreage planted to cotton in Argentina for the 1937-38
season is placed at 1,11g,000 acres according to the first official estimate.
This compares with the first estimate for last season of slightly more than
a million acres. Because of widespread crop failure last year's production,
which ,as first expected to amount to over 360,000 bales, has been revised
downward to a final estimate of 143,761 bales. The record high acreage
planted to cotton this season is especially significant in view of the very
poor crop in 1936-37, and will in all probability result in a material in-
crease in the 1937-39 Argentine crop.














Cotton: Exports from the United States to Japan and total to all countries,
specified months and seasons


Season : August : September : October : IUoveimber : December :Total for season
beginning: apan : Total : Japan Total Japan Total Jar.an Total Janan Total Jap an Total
August: 1,000 1,000 1,000 1,0 00 1,000 1,000 1,000
1,000 1,000 1,000 1,000 1,000 1,000 11000 1,000 1,'000 1,000 1,000 1,1000


5-year
average,
1928-32..


runnings running running
: bales balos bales


: g9.2 341.6 125.0


running


running running running running running running running fanning


bales bales bales tales bales bales bales bales bales


746.2 185.0 1,036.6


211.0 1,093.4 208.6


y91.2 1,518.8 7,724.0


1933-34..:
1954-55..:
1935-36..:
1936-37..:
1937-58.. :


Bureau of Agricultural Economics.


-z

M c
-n

*__ 0
o -Ti
.^^ 0
0, '0


117.0
64.0
57.0
24.0
17.0


550.6
252.5
241.5
132.5
220.4


227.0
164.0
134.0
164.0
24.9


869.2
455.7
486.8
569.6
617.4


231.0
265.0
157.0
255.0
26.7


1,044.8
615.6
711.7
861.0
798.9


22C.0
200.0
286.0
221.0
15.2


915.3
572 .4
114.9
689.3
797.0


217.0
217.0
269.0
118.0


820.1
504.7
986.0
593.9


1,844.0
1,521.0
1,479.0
1,550.0


7,554.4
4,798.5
5,972.5
5,440.0




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