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
Was h i ngt on -


CS-21 T H E C 0 T T 0 N S I T U A T 1 0 NI July 26,1938.
-------------------------------------------

Summary

On the basis of prospective consumption of cotton during the last 2

months (June-July) of the current season, the 1937-38 world consumption of

American cotton will total about 11,100,000 running bales, the Bureau of

Agricultural Economics estimated today. This is almost 2 million bales

less than that of the previous season and 15 percent less than the average

for the 5 years ended 1936-37. While consumption in the United States was

slightly higher in June than in May it is expected to be less in July.

Despite recent market increases in sales of cotton textiles by domestic

mills, it is expected that seasonal factors in July will reduce consumption.

On the basis of present estimates of the season's running-bale sup-

ply and of the small quantity accidentally destroyed, a consumption of

11,100,000 bales in 1937-33 would leave a world carry-over of American cot-

ton on August 1 of approximately 13,500,000 bales. This compares with

6,200,000 bales a year earlier and the previous record high of nearly

13,300,000 bales at the beginning of the 1932-33 season.

It seems likely that the world mill consumption of foreign cotton

for the season now drawing to a close probably will be in the neighborhood

of 15-1/4 million bales compared with 1.7,900,000 bales the previous season.

In view of the uncertainty with respect to the 1937-38 supply of Chinese

cotton available for mill consumption mand exports,, it is difficult to esti-

mate the world carry-over of foreign cotton, even assuming the above con-

sumption estimate to be correct. A very tentative estimate of the world





J-2(1 2-

carry-over as of Auguist 1, however, is 10,million bales. On August 1 last

year the estimated world carry-over of foreign cotton was a little less than

7,100,000 bales, a new record high.

Considerable -.rrprovement occurred in sales of cotton goods by British

and Chinese mills in the last part of June but, in most other countries, sales

apparently continued very greatly restricted. The statistical position of

foreign mills as a whole and seasonal factors seem likely to result in a lower

average consumption in these countries in June and July than in May.

In view of its importance with respect to th prospective 1938-39 world

supply, much interest is now centered in developments with respect to the new

crop. The area in cultivation in the United States on July 1 was recently

officially estimated at 26,900,000 acres. With 10-year average percentage

abandorunment and State yields eq'ual to the averages for the preceding 5 and

10 years, this acreage would give a crcp of approximately 11-1/2 million and

10-3/4 million bales of 500 pounds gross weight, respectively, compared with

a crop of 18,946,000 %ales in 1937. The 1938 Chinese crop is estimated at

1,400,000 bales (40 percent) less than that of the preceding year. In north-

ern Brazil and Mexico the 1938-39 production estimates are 15 and 24 percent

less, respectively, than the latest estimates of the preceding crop.


PRICES

Domestic cotton prices advanced a little more than I cent per pound
during Juno and the first few days of July accompanying the sharp advance in
prices of securities and a number of other commodities, increased sales of
cotton textiles by mills and trade reports of unfavorable developments with
respect to United States crop prospects. On July 8 Middling 7/8 inch cotton
in the 10 markets averaged 9.15 cents per pound and was the highest average
for these markets in approximately 4 months. During the second week of
July, prices in these markets weakened somewhat and by July 16 Middling 7/8
inch declined to 8.66 cents. Prices then strengthened somewhat and on July







23 averaged 8.89 cents. In July last year prices in these markets averaged
12.12 cents. Not since July 1932 has the price of Middling 7/8 inch in the
10 markets for the month of July averaged less than 10.50 cents.

The advance in the price of American cotton in the United States in
June and early July was accompanied by an advance of approximately the same
amount in Liv.rpool. While the price of most foreign growths in Liverpool
also advanced, the rise was less than that of American. 'As a result, on
July 8 the price of American was higher relative to most of these growths
than for many months.


EXPORTS

The 176,000 running bales of American cotton exported in June repre-
sented a decline of 23 percent in comparison with a year earlier and a 55
percent decline in comparison with the average for June during the 5 years
1933-37, according to data released by the Bureau of the Census. Exports
for Juno this year were the smallest for the month in 26 years.

The drop in June reduced the increase of total exports for the 11
months of the current season over those of a year earlier to only 87,000
bales or 2 percent. At the end of January, the total for the first half of
the season was 400,000 bales and 12 percent larger than in the corresponding
period of 1936-37. According to trade reports, exports in the first 20 days
of July were somewhat higher than a year earlier. While there is usually some
difference between the official data and those from trade sources, these un-
official data for the first.3 weeks of July indicate that for the season end-
ing July 31, 1938, total exports of American cotton as officially reported
probably will be about 125,000 bales larger than the 5,440,000 bales exported
in the 1936-37 season.

DEMAND AND CONSUMPTION

UNITED ST'ATES: Position of mills greatly improved

Domestic manufacturers' sales of cotton goods were as large as or
larger than the restricted production in each of the 4 weeks ended with July
9, were reported as especially large in the 2 weeks ended July 2, and were
probably more favorable relative to output than in any 4-week period for more
than a year. This periodcf active sales greatly increased the statistical
position of domestic mills resulting in a marked increase in unfilled orders
and perhaps some decline in the stocks of manufactured goods. During the 2
weeks ended July 23, sales were considerably smaller than in the active weeks
immediately preceding, but did not appear to be very materially below output.

Domestic mill consumption in June amounted to 443,000 running bales
compared with 426,000. bales in May and 681,000 bales in June last year. The
daily rate of consumption in June was 3 percent higher than in May but 35
percent lower than in June last year. For the 11 months August through June,
United States consumption of all cotton totaled 5,307,000 bales which was


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2,060,000 bales or 28 percent less than the record high of last (1936-37)
season. Of the total consumption for the 11 months ended June 30, 1938, all
but about 132,000 bales was American cotton.

Preliminary reports with respect to domestic mill activity in early
July indicate that the daily rate of cotton consumption for the month of July
will probably not show any increase over June. This, together with two less
working days in July than in June, makes it seem likely that total consumption
for the month of July will be within a few thousand bales of 400,000. All
but about 10,000 bales of this will be American cotton. Should consumption
for the month prove to be about as indicated, the total domestic consumption
of American cotton for the 1937-38 season would amount to a little less than
5,600,000 bales and a total consumption of foreign cotton to about 140,000
bales.

CONSUMPTION IN FOREIGN COUNTRIES: Season's total to be much lower
than in 1936-37

During the 10 months onded May 31, total consumption of American cotton
in foreign countries amounted to 4,690,000 bales, according to estimates of
the New York Cotton Exchange Service. This was 280,000 bales or 6 percent
larger than in the corresponding months a year earlier, but the smallest for
any other like period for many years. On the basis of preliminary information
with respect to mill activity in foreign countries during June and July, it
now seeins likely that total consumption of American cotton outside the United
States for the 12 months ended July 31, 1938, will probably amount to about
5,500,000 bales.

It has been estimated (by the New York Cotton Exchange Service) that
cotton mills outside the United States consumed a total of 12,780,000 bales
of foreign cotton during the first 10 months of the 1937-38 season. On the
basis of this estimate and reports pertaining to mill activity in June and
early July, it now seems likely that for the entire season, consumption of
foreign cotton in countries other than the United States will probably total
in the neighborhood of 15,200,000 bales. This would compare with a total of
17,720,000 bales in 1936-37, 15,070,000 in 1935-36 and an average of 13,750,000
bales for the 5 years ended 1936-37..

EUROPE: / Sales of cotton textiles improve somewhat, output continues low

The encouraging trend of raw cotton prices and somewhat more reassuring
economic reports from the United States in June and early July were accompanied
by better feeling and a measurable improvement in new business of the British
mills, and on the Continent the downward trend in cotton textile sales at least
seems to have been arrested. Mill occupation in Europe on the whole appears to
have undergone further downward adjustment, however, in accordance with the de-
cline of new sales in earlier months. Unemployment in the British cotton mills,
in particular, was on a very high level at the middle of June, but some idle
machinery has since been put into operation.

I/ Based largely upon a report prepared in the Bureau's London Office dated July 6.


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The improvement which occurred in the statistical position of the
British cotton textile industry in June was in evidence only -to a very limited
extent on the Continent. In Francs during most of June and early July sales
were apparently below the restricted output. Prior to early July when a slight
improvement was reported, the weakness of domestic buying in Italy made dom-
estic stocks of textiles appear overloaded with relatively high-priced goods,
and the unsatisfactory state of the export markets gives little encouragement
as a source for the disposal of these stocks. The German cotton textile in-
dustry continues well occupied despite seasonally quieter tendencies in
places and better supplied with raw materials compared with last year.
Austrian textile exports have severely declined since the annexation, and the
cotton industry is,in a transitory period in which adjustments to the Reich
system of raw material allotment and substitute fiber admixture must be made.
Czechoslovakia continues her vital struggle for export markets, with mill act-
ivity depressed and much below %.1 and 2 years ago. Naturally, as a result
of the more or less world-wide depression in cotton textiles, competition in
the European textile export markets has become greatly intensified and there
is keen rivalry between offerings notably from Great Britain, Italy, Czecho-
slovakia, France, Belgium and Germany.

United Kingdom

The cotton textile demand situation in Great Britain, which by the end
of May had reached a very depressed state, improved noticeably through June
and early July. Small orders for both yarn and cloth apparently were taken
in sufficient number to make a fair aggregate volume for the month of June.
Some mills, in fact, were said to have been able to sell more freely than at
any time since the summer of 1937. By the end of June, however, there were
indications that buyers were reluctant in following the steep advance in
prices, but trade reports indicate that since that time sales have held up
quite well in relation to output. As a result of this improvement, apparent-
ly there has been a slight increase in mill activity in recent weeks.

In the export field, a fair inquiry from India has continued to be re-
ported, but markets which were heavy buyers last year apparently have not yet
appeared to want goods in quantity. Exports showed further recession in May
end June. In May piece goods exports reached, it is said, the level of 86
years ago, and were 32 percent below a year earlier, while yarn exports were
40 percent down from May 1937. In June piece goods exports were 13 percent
less than in May and 38 percent below June 1937. A development, however,
which it is thought may somewhat encourage British exports of yarn and cloth
to Germany, is the arrangement announced by the British Government on July 1
for the resumption of interest payments on the Austrian guaranteed loan. It
is-understood that in the settlement Germany makes useful trade concessions
as well as undertakes to reimburse British payment under the ,guarantee and
to service British holdings of this and certain other German and Austrian
obligations on which Great Britain in turn grants a substantial reduction in
interest rate.


- 5 -





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In the home retail trade, conditions continue to be reasonably sat-
isfactory. Despite .an increase between June of 1937 and June 1938 of roundly
half a million in the total of unemployed wor-ers in Great Britain, retail
sales of piece goods of, all kinds in..May were reported as only 2.3 percent
lower in value than. in May a year ago, while stocks were 3.8 percent lower.
June sales are said to have resulted in further satisfactory retail clearances
of cotton goods.

Germany

Continued high cotton mill activity is reported from Germriny for the
month of June and the first half of July, except for slight seasonal declines
in some sections. According to import statistics, the raw material supply
this season contin-ics considerably more favorable than a year earlier. Al-
though imports of raw cotton ard waste, etc. in March and April ran much belmvow
the months irncdiately preceding, May imports were again comparatively high.

An exIaminaticn of total Cerman textile exports in 1937 (including all
kinds of textile goods) shuvs a fiurthcu increase in the export value to 541
million marks, from 435 million in 1935 and 510 million in 1936 2/ equivalent
to 218, 175, and 205 million dollars, respectively, at the annuaT average ex-
change rate. The increases reported were largely due to gains made in ex-
ports to Southeastern Europe (notably Yugoslavia, Turkey and Greece) and to
Northern Euror2 (Great Britain and the Scandinavian countries). However, South
American countries -also iincreasud their takings of German textiles, and there
were gains in Africa and Asia as well. Considerable declines, on the other
hand, were registered in German exports to the United States and such countries
as the Netherlands and Switzerland whose textile industries were under-employed
and largely dependent on exports.

Reflections regarding the future of Austrian textile exports indicate
that the quality factor is likely to play some role. Hitherto Austrian tex-
tile production perfectly free to cover its raw material needs according to
requirements has mostly used traditional spinning materials, while from now
on the German substitute inixtures will prevail. It is thought questionable,
in some quarters, whether export buyers *ill readily change over to the mixed
type of textiles. Thny hope that special provision for pure raw material
allotments for export orders will be made. Reports indicate that, since the
annexation, Austrian textile sales to export iharkets have already shown a
very material decline.

The first factory for the production cf cell-wool or staple fiber in
Austria was founded in June 3/. The factory which will be operated in con-
junction with an old-established paper factory is to have an annual capacity
of 15,000 metric tons (33,000,000 lb.) of cell-wccl.


2/ Cf. Frankfurter Ztg., June 14, 1938.
I/ Zellwolle Lenzing A. G.


CS-21





CS-21


Czechoslovakia

Little or no improvement was reported in the Czechoslovakian cotton
textile industry in June and early July. Unfilled orders on hand in spinning
mills were reported very much below last year, and current sales both for the
home and export markets remained unsatisfactory. As a result, mill activity
was further reduced. Latest available statistics on the percentage of
spinning mill occupation (1929: 100) are for March when activity stood at
76.6, compared with 102.7 in March 1937. April 1938 is presumed to have
been reduced to about 72.0 and May and June too have boeen around this level.


France

June developments in the French cotton textile industry, on the whole,
continued unsatisfactory. While the first half of the month appeared somewhat
brighter, with rath-r more business in fabrics as well as yarns reported
notably from Normandy, the second h:i1f was again very quiet, and Juno
production on the whole scrams to have outrun sales. Complaints were heard
as to prices received, which are described as much below costs.


Italy- V

Declining raw cotton and cotton gocds markets are reported from
Italy for May, and the situation in most of Juno did not seem to show
much improvement in now sales. Reports to the Noe; York Cotton Exchange
Service indicate some improvemenr.t in late June or early July. Official
statistics for March this year shovecd a further reduction in spinning
mill activity, while weaving mill occupation romainod on the enhanced
February level. Both spinning and weaving activity at that time wore still
well above a year earlier, particularly the latter, largely bisod on old
orders on hand. Despite any recent increase, current sales by mills remain
unsatisfactory vrith dor.estic and export dcu-.nd weak. Inventories are said
to be overloaded with relatively high-priced gocds. In the export markets
keen competition is reported from German, Japanese aend British yarns and
textiles. Italian mill activity is indicated from reports on employment
to have boon further reduced through :lsay with no indications of any
significant increase since then.

Following the decline in export orders reported for some time back,
actual exports of cotton yarn and cotton fabrics (including exports to
the colonies) during the f irst 4 months of 1938 wore smaller by 15 and 12
percent, respectively, than in the corresponding period of 1937. Raw
cotton imports, on the other hund, from January April 1938 wore 13
percent larger than in the same months of 1937, and some increase in raw
cotton stocks in mills and warehouses (including free ports) wore
reported.


L/ Based largely on information received frorl the Amjerican Ccnsulateo
General at Milan.


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CS-21


ORIENTT Cotton consumption about unchanged in June.
execute] k decline in July



Indications are that total cotton consumption in Japan in June remained
at about the same level as in May but was approximately one-fourth less than a
year earlier. Because of a more favorable comparison in the early part of the
season, total consumption for the 11 months ended June was nearly 10 percent
below the record high of the corresponding months last season. If recent
reports pertaining to Japanese cotton control measures are correct, and if these
measures are strictly enforced, it seems quite likely that Japanese cotton mill
consumption will decline considerably in July.

According to press reports, the new cotton control measure, effective
July 1, prohibits the manufacture of pure or mixed cotton yarn and cloth for
sale except for military purposes in Japan, in Manchuria, or in areas
of China where Japanese currency is being used. In the early part of 1938,
the Japanese Government issued an ordinance requiring that all textiles for
home use include a mixture of staple fiber. In the case of cotton textiles,
the regulations required mixtures of about one-third staple fiber and two-
thirds cotton. As a result of this previous regulation, the relative im-
portance of the Japanese market as an outlet for goods produced from cotton
manufactured in Japan has probably been reduced somewhat since 1937 when
it is estimated that about 50 percent of the cotton manufactured in Japan
was for domestic use and th remainder used in .the production of goods for
export. It is clearly evident, however, that if this measure applies to all
textiles, other than those sold to the Government for military purposes, it
would materially reduce the quantity of cotton consumed and imported by
Japan unless Japanese exports of goods increase materially.

It is stated that the object of the control measure is to link raw
cotton imports to cotton textile exports. It is stated that control of the
textile industry will be returned to the cotton spinners' association and
cloth exporters' association acting through the Government-controlled Cotton
Demand and Supply Adjustment Council in an endeavor to minimize uncertain-
ties within the industry. According to reports, official maximum prices of
cotton yarn and cloth previously in existence are to be discontinued. It
is further stated that existing stocks of pure and mixed cotton yarn and
cloth have been ordered to be sold to the spinners' association and to the
cloth wholesalers' association which are to distribute these goods at such
prices and in such manner as the Government may direct.





4/ Based largely on radiograms from the Bureau's Shanghai Office, dated
July 6, S, 20 and 21, transmitting information furnished by the American
Consulate at Osaka,





-9-


China.- include A/

Cotton mill activity in Qhtna remained about the same in JAMe as
in April and May, with mills lightly less active in Mayv in Hhfnkow but
somewhat more active in Sbhweaai., %oWl mill consumption for June is
estimated at 120,000 bales, equivalent to an annual rate of 1,250,000
bales, which is less than half as large as the unusually high consumption
during the 1936-37 season. The current rate, however, is much higher than
in the first part of the 1937-38 season. Prices of Chinese cotton in
Shanghai were considerably higher in the early part of July than a month
earlier. This advance was accompanied by a considerable increase in the
price of cotton yarn with ppitners' margins continuing unusually high.
This, along with the fact that yarn stocks at Shanghai were reported as
being low, is favorable to a continuation of the somewhat higher level
of mill activity in Shanghai.



Preliminary reports indicate that cotton nill activity in India
continued quite high in June, although somewhat less than in the months
immediately preceding. Unless activity declines considerably during July,
it is now expected that consumption for the 12 months ended July 31 will
exceed that of the previous season by about 350,000 bales and exceed by
a substantial margin that of any previous season. The unusually high
level of cotton consumption in India during the past several months,
when cotton consumption was declining in most parts of the world, is
accounted for to some extent by reduced imports from Japan and also by
increased exports of cotton textiles from India, apparently resulting
from the difficulties confronted by the Japanese export industry during
recent months. Indications are, however, that sales of cotton. goods
in India have been maintained at an unusually high level during the
current season.

SUPPLY


It is now estimated that on August 1, 1938, the world carry-over
of American cotton will total about 13,500,000 running bales compared
with approximately 6,200,000 whales a year earlier and a previous record
high of nearly 13,300,000 bales in 1932. The estimate of this year's
carry..over is very tentative, both because of uncertainties as to the
exact quantity of American cotton which will be consumed throughout the
world (see Demand and Consumption Section above) and also because of the
fact that the estimate of the 1937-38 supply the August-July innings
plus the city crop is still preliminary as is the estimate of the
quantity of American cotton accidentally destroyed during the season.

/ Based largely on radiograms from the Bureau's Shanghai Office dated
July 13 and 14.


OS-21





- 10-


It seems quite liely, however, that the above estimate of crrywver
will be fairly close to the finrl.

The world carry-over of foreign cotton on August 1 this year ha.
been very tentatively estimated at about 10 millim bales. This compares
with a little less than 7100,000Q bales last yer which is the previous
record high. However, any estimate made at this time of the world carry-
over of foreign cotton must be considered as subject to considerable re-
vision. This is especially true because of the exceptionally tentative
estimate of the 1939-39 commercial supply of Chiaese cotton and the =--
certainty of the estimates of the quantity of Chinese cotton consineG
and destroyed during the season (such estimates are difficult to estiate
at any time but especially so this year because of military activity in
important cotton producing and consuming areas), as well as bicAuse of the
usual uncertainty of the supply and distribution estimates for other fereia
growths.

These rough estimates indicate a world carry-ever of all cotton on
August 1 this year of about 23,500 000 bales. The estimated carry-over
on August 1 last year was 13,300,000 bales. The previous record carry-
over of 18,300,000 bales occurred in 1932.

United State, Oro P_= egts

The acreage of cotton in cultivation in the United States cn July 1
is estimated by the Crop Reporting Board at 26,904,000 acres. This esti-
mate which was released July 8 is 22 percent less than the 34,471,000
acres in cultivation on July 1, 1937, 2S percent less than the 1927-36
average, and 16.s percent less than the 1933-37 average. Applying.the
10-year average (1928-37) percentage abandonment to this year's planted
acreage would indicate the smallest acreage for harvest since 1900. The
next lowest acreage was in 1934 when 26,866,000 acres were harvested. The
indicated acreage in cultivation on July 1 is more than 1 million bales
less than the preliminary estimate of the national acreage allotment as
determined under the provisions of the amended Agricultural Adjustment
Act of 1938. The Crop Reporting Board attributes the small 1938 acreage
to "the Agricultural Adjustment Program, relatively low cotton prices for
last year's crop; and difficulties in securing stands because of unfavor-
able weather."

The official report on probable production of lint will be made by
the Crop Reporting Board on August 8. With average percentage abandonment
for the 10 years onded 1937 and with yields in each of the cotton producing
States equal to the average for the 5 years 1933-37, the above estimate
of acreage in cultivation on July 1 would give a crop of about 13-1//
million bales, and with yields equal to the average for the last 10 years
a crop Qf 10,750,000 bales would be produced.


OS- 1





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Foreimn Crop Proapects

The 1938 Chinese cotton crop is still being estimated by the Bureau's
S-anghFi office at 2,200,000 b,-.les of 4778 roimds net weight according to a
r-adiogram received July 14. While CMUin.se cotton crop conditions in general
deteriorated during the pest month, recant information indicates that the
earlier estimates of acreage were somewhat too low. The deterioration in
crop conditions resulted from elcecsive rair.s in the Yangtze Valley, Hopei,
Shanturg, and Honan, In'eastern ifonax, northern inhwei, a:nd along the
Yangtze River serious floods occurred. The above estimate is 1,400,000
bales or 40 percent less than the crop Iarvested in 1937. This decline i's
expected to more than offset the large increase in the carry-over of Chineae
cotton on August 1, 193S, over that of a year earlier which resulted from a .
rather large crop and the sharp decline in cotton consumption in China.

In view of the disruptive conditions in the cotton manufacturing
centers of China amid. in Chinese transportation facilities, an unusually
large proprrtion of the 1937 crop was consumed in Chinese homes and,
therefore, ever rep.chcrl. commercial channels. It is quite poC-Able that for
similar reasons, the 1953-39 Ch'inese commercial crop, in relation to the
total agricultural crop, Lvay also be smaller than usual.

Other 1938-39 production estimates thus far received include northern
Brazil and Mexico. The new crop in these two areas is now expected to be
15 and. 24 percent loss, respectively, than in 1937-38. The first official
estimate of thle 1iq-39 cotton acreage in Eypt was 6 percent less than
that of the prece.7dLng crop, while in Bulgaria it was estimated to be 27
percent more than in 1937-38. According to an unofficial report, infor-
mation from the earlier cotton planting districts of India indicates a
small decrease in acreage in these areas.

These early and preliminary reports indicate that the total 1939-39
foreign cotton crop may be substantially smaller than the unusually large
crop of 1937-38.


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