Islip FTZ Authority

At the beginning of this year, the United Stated Department of Agriculture's Agriculture Marketing Service (AMS) presented its Cotton Outlook Report. This report called for a 10.5 percent decline in the average prices of cotton, which brought the price to 68 cents per pound for 2014. International traders note this projection marked a five-year low and was below the average 70 cents per pound production cost the industry faced.

 

This disappointing drop in prices was predicted due to an increase in world stocks of cotton, which exceeded the world consumption rate for the fifth year in a row. International trade information reports have found that world stocks of cotton have more than doubled since 2009. China was largely to blame for this surplus. Its government created policies that supported prices at above market-clearing levels. However, the government planned to gradually reduce its support for these policies to improve cotton prices and help to clear the market.

China announced these changes in the fall of 2013, and import export businesses predicted correctly that these changes would occur gradually. The USDA commented at the time that it was likely that world production and consumption would also not react quickly to the market changes China would make.

Despite the low forecasted price per pound, U.S. farmers planted more cotton acres during 2014. Although final reports have not yet been tabulated, the USDA expected that producers would plant 11.5 million acres of cotton this past year. If farmers meet this prediction, they will have increased the acreage devoted to cotton in the U.S. by 10 percent over 2013.

Crop abandonment was also expected to be lower, which increased production yields. The abandonment rate in 2013 was 26.4 percent, but the USDA expects that the abandonment rate for 2014 will only be 16 percent. If this number holds true, the cotton production in this country will have reach 16.3 million bales, which would be a 23.5 percent increase in production over last year's values.

Because of these changes in the market value in cotton, the USDA's Agricultural Marketing Service decreased the assessment fees paid on U.S. imports of cotton and cotton products from $0.012879 per kilogram to $0.012728 per kilogram. This rate had been increased a mere two years ago, so the decrease was a bit of a surprise to the international commerce community. The AMS noted in its release about the value change that it felt the change was necessary to keep assessments collected on imported cotton the same as those paid on domestically produced cotton.