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TIGHT SUPPLIES, STRONG DEMAND HIGHLIGHT COTTON SITUATION The cotton market is experiencing robust de mand and decreasing supplies, which are ex pected to strengthen prices in the 1976-77 mar keting year. The nation’s producers foresaw a prosperous crop year and increased the acreages planted to cotton. Supplies down Domestic and foreign supplies in the 1976-77 marketing year, which begins August 1, may be tight. Consumption of cotton in the 1975-76 mar keting year will exceed production by about 2 million bales in the United States, and foreign consumption is expected to be 7 million bales over output. At the beginning of the next mar keting year, therefore, stocks in the United States may total 3.5 million bales while foreign stocks may be near 20 million bales. These would be the lowest beginning stock levels since the 1972-73 marketing year and well below 1974-75 levels. The level of U.S. stocks is near the amount needed for domestic mills to continue operations until supplies from the new crop are available, and stocks abroad should keep foreign mills operating about four months. A five to six-month supply is usually considered desir able by the textile industry. In particular, sup plies of shorter-staple cotton used to produce denim and corduroy fabrics will be low in the United States. These supplies will not be replen ished until about December, when cotton in Oklahoma and Texas is harvested. The larger acreages planted by U.S. farmers this spring, given normal yields of about 450 pounds per acre, point to a crop of around 10.5 million bales— up more than a fifth over the 1975 output. However, depending on the magni tude of mill use and exports, U.S. stocks at the end of the 1976-77 marketing year could be lower than the beginning stocks. Foreign production is expected to increase about a tenth to 51 million bales. But given the projected overseas consumption of 56 million to 57 million bales, world stocks on July 31, 1977, may also be below supplies at the end of the cur rent marketing year. Demand up Increasing demand both at home and abroad has strengthened the market for U.S. cotton. Consumption of domestically produced cotton may reach 12 million bales. Despite continuing strong competition from man-made fibers, disap pearance should be bolstered by the recovery of the general economy, growth in personal incomes, and increased popularity of textile products made from natural fibers. This popularity is stim ulating the use of cotton in denim, corduroy, duck, sheeting, knits, and fine cotton goods. And use of cotton in blends with man-made fibers, such as polyester, is also increasing. Domestic mill use of cotton is expected to range from 6.5 million to 7.5 million bales in the next marketing year, compared with about 7.3 million in the current year. Actual consumption will depend on cotton prices relative to those of man-made fibers and cotton textile imports. Cotton’s share of total mill consumption of all natural and man-made fibers, at about 29 per cent, was steady in the past three calendar years. U.S. COTTON SUPPLY, DISAPPEARANCE, AND PRICES SUPPLY, DISAPPEARANCE PRICE 24 MILLION BALES------------------- CENTS PER POUND 60 1975 preliminary; 1976 estimated SOURCE: U.S. Department of Agriculture WORLD COTTON SUPPLY AND DISAPPEARANCE 120 MILLION BALES YEARS BEGINNING AUGUST 1 1975 preliminary SOURCE: U.S. Departm ent of Agriculture In recent months, however, its share has slightly exceeded 30 percent. Cotton prices are averaging slightly higher than the prices of man-made fibers. In March 1976, for example, staple fiber prices for M id dling l TV inch cotton, rayon, and polyester— raw fiber equivalent— were estimated by the U.S. Department of Agriculture to be 69 cents, 53 cents, and 55 cents, respectively. Higher relative prices may temper the use of cotton, and mills could increase the use of man-made fibers. But because of rising prices for oil and other inputs, prices of man-made fibers are also expected to increase gradually in the next marketing year. Domestic mill demand for cotton, however, may be affected slightly by strong textile im ports. Foreign shipments of textile products to the United States— especially print cloth and sheeting fabrics— are estimated to have reduced domestic mill consumption of raw cotton fiber by 400,000 bales in 1975-76. And if textile imports are large in the 1976-77 season, domestic mill consumption may be dampened slightly more. Export sales should be strengthened by limited world supplies and more competitive U.S. cotton prices at overseas markets. And with the recov ery in world textile activity progressing, over seas mills may increase purchases of cotton from the United States to help fill the gap between usage and production. Shipments to foreign mar kets are expected to range from 3.5 million to 4.5 million bales, compared with the 3.5 million shipped in 1975-76. Altogether, the prospects for cotton are bright. The supply-demand situation indicates a favor able cotton market and bullish prices for U.S. farmers in the next marketing season. And given normal yields, coupled with the increase in planted acreage, the income and financial posi tion of cotton producers may improve. RICE GROWERS RESPOND TO MARKET SIGNALS Rice growers in the United States are receiv ing low prices as supplies have mounted in the wake of record domestic and world production in the 1975-76 crop season. In response, U.S. grow ers have substantially reduced planted acreages in 1976. Record acreage and high yields combined to produce the record U.S. crop of 128 million bushels in 1975, which was 14 percent larger than the 1974 harvest. Although domestic use has increased slightly in the 1975-76 marketing year, carryover stocks on August 1, 1976— the beginning of the next season— could be around 34.0 million hundredweight, nearly a fivefold in crease over a year earlier. Total U.S. commercial and Public Law 480 export sales for the current marketing year have been estimated at 58.7 mil lion hundredweight. Although down nearly 15 percent from 1974-75, this would still be the second largest volume on record. A bumper world rice crop— 350 million metric tons— also points to a buildup in foreign stocks, despite a steady annual growth in world rice con sumption. World carryover rice stocks on Au gust 1 are projected at 14 million to 15 million tons, up more than a third from a year earlier. India, the People’s Republic of China, and Brazil account for over half the increased production. The improvement in world stock levels in ex porting and importing countries alike has re duced world rice trade. While world rice trade was 7.4 million metric tons in calendar year 1975, it has been projected to fall 5 percent to about 7 million tons in 1976. World trade may only post a small decline because many areas with food deficits— such as Indonesia, Bangla desh, and India— will still have import needs even with improved production and supplies domestically. The U.S. farm price of rice, depressed by in creased supplies and a slowdown in exports, has been at reduced levels since harvest last year. Market prices received by U.S. farmers in May averaged $7.06 per hundredweight, down $2.74 from last August and $4 from a year earlier. And the May farm price was $1.50 per hundredweight less than the average 1975-crop loan rate for rough rice. Loan activity, therefore, has increased sharply, and takeover of rice by the Commodity Credit Corporation this spring may be the largest on record in 25 years. According to the U.S. Depart ment of Agriculture in its monthly report on grain loan activity, the cumulative total of rice placed under price support by the end of May was 21.5 million hundredweight, compared with 9.3 million a year earlier. Stocks delivered to the CCC through May totaled 11 million hundred weight. But a large share of the 1975 crop was not eligible for price-support loans since only rice grown on allotted acreage can qualify. Prospects for recovery in rice markets and prices are dim. The buildup in supplies in the current marketing year will likely have a moder ating effect on market prices well into next sea son. And with the 1976 crop impending, prices could be pushed down further. Moreover, the loan rate for the 1976 rice crop was set at $6 per hundredweight, which compares with an esti- RICE PRICES AND LOAN RATE 20 DOLLARS PER HUNDREDWEIGHT farmers. And with the cost-price squeeze, the financial position of growers has weakened. AGRICULTURAL BRIEFS YEARS BEGINNING AUGUST 1 1974 and 1975 preliminary for prices 1975 preliminary and 1976 projected for loan rate SOURCE: U.S. Departm ent of Agriculture mated average loan level of $8.52 for last year’s crop. In the new rice program, a target price of $8 per hundredweight was set for this year’s crop. Both the loan rate and the target price will be adjusted for changes in the index of prices paid by farmers for production items, taxes, and wages from February 16 through July 31, 1976. Given the April 1 planting intentions of 2.36 million acres, the USD A estimates the U.S. rice crop this year could be 109 million hundred weight, 16 percent below 1975 but still the third largest on record. But production could be higher, depending on the actual number of acres planted. And although domestic use is expected to rise slightly, a further buildup in stocks is imminent. Too, exports may be limited in the next marketing season by large world supplies, and shipments could fall slightly below 1975-76 levels. U.S. stocks at the end of the next market ing season may total around 43 million hundred weight, up a fourth from August 1976. Increasing production costs and low prices have reduced incomes received by U.S. rice • Mohair prices received by Texas producers in May were $3.40 per pound, grease basis, after reaching a record $3.50 in April. Most of the spring clip, however, was sold under contract at prices between $2.10 and $2.50 per pound. Prices received for the fall clip may be lower, as export demand has slackened and production is ex pected to rise slightly. • Fertilizer applied by Texas farmers in March totaled 246,100 tons, 16 percent more than a year earlier. The July-March total was 1.45 mil lion tons, up a fifth from the same period in 1974-75. With lower prices, application of fertil izer has increased. • World milk output in 1976 is expected to be about 385.5 million metric tons, up about 1 per cent from 1975. U.S. production may rise 1.4 percent to 53.1 million tons. Increased world output has been boosted by good forage and cheaper feed concentrate supplies, as well as higher support prices in some countries. Prepared by Alan M. Young
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