H. Scott Stiles

The October 2024 WASDE report featured a sizeable cut to U.S. cotton yield and production forecasts.  This was largely the result of impacts from Hurricane Helene on the southeast region of the Cotton Belt. USDA reduced the U.S. average all cotton yield by 18 pounds to 789 pounds per acre.  If realized, this would be the lowest yield since 2015. USDA in turn lowered production by approximately 310,000 bales, which put the 2024 crop estimate at 14.2 million bales.  No adjustments were made to planted and harvested area estimates.  Beginning Stocks were left unchanged at 3.15 million bales.  Total supply was reduced to 17.36 million bales on this lower production estimate. 

On the demand side of the U.S. balance sheet, USDA reduced 2024/25 domestic mill use by 100,000 bales to 1.8 million and lowered its export forecast by 300,000 bales to 11.5 million. The current mill use estimate would be the lowest since the 1884/85 marketing year, when approximately 1.7 million bales were used (Meyer and Dew, 2023).  U.S. cotton export weekly net sales are off to a sluggish start in the new crop (2024/25) marketing year. Cumulative export sales for the 2024/25 crop are down 10 percent from last year, as of the week ending October 3rd.  Notably, U.S. cotton sales to China are off 74 percent from a year ago, reflecting USDA’s outlook for a 6-million-bale reduction in China’s import needs this year. In recent years, China has consistently been the single largest buyer of U.S. cotton.  However, in the current marketing year, China purchases lag Pakistan, Vietnam, Mexico and Turkey. Of note, in 2023/24, China’s imports reached an 11-year high of 15 million bales.  A few key factors led to last year’s surge in imports, including purchases for government reserves, lower domestic production, and lower foreign prices relative to domestic prices.  Imports for government reserves in 2023/24 amounted to one-third of China’s total imports, or roughly 5 million bales. With an increase in government reserves and an 800,000-bale increase in cotton production this year, China’s imports are expected to decline sharply in 2024/25, falling below the 5-year average of 9.8 million bales. 

Total demand for U.S. cotton was lowered 400,000 bales this month, which left 4.1 million bales in ending stocks. Despite a large cut in production, ending stocks were increased 100,000 bales from the September estimate as larger reductions in mill use and exports offset sizeable productions losses in Georgia and the Carolinas. 

The 2024/25 season average upland farm price was unchanged at 66 cents per pound, down 13.3 percent from last year’s 76-cent average.  This price would be the lowest season average farm price since 2019/20. There were no revisions to the 2023/24 U.S. cotton balance sheet.

USDA’s October projections for the world cotton balance sheet included a decrease in beginning stocks, an increase in production, stable consumption, and slightly lower ending stocks.   World production was increased over 200,000 bales to 116.64 million bales from 116.42 million last month. Notable increases were in China (+400,000 bales) and Brazil (+100,000 bales) which more than offset the 300,000 bale reduction in the U.S. crop.  Brazil is expected to produce a second consecutive record crop of 16.8 million bales in 2024/25.  Brazil surpassed the U.S. last year in cotton production and exports, becoming the world’s largest cotton exporter and third largest producer, behind China and India.

World cotton trade was reduced over 510,000 bales to 42.47 million, mainly due to a 500,000-bale reduction in China’s imports.  For 2024/25, China’s imports are estimated at 9 million bales, down from 9.5 million last month and 15 million bales last year.  China’s cotton inventories relative to use are comfortable. With production of 28.2 million bales, ending stocks in China are expected to be 36.24 million at the end of the marketing year.  Thus, domestic stocks would be equivalent to 95 percent of China’s 38 million bale projected mill use.  World ending stocks were reduced 160,000 bales from last month to 76.3 million, up from 75.2 million in the 2023/24 marketing year. There were no significant revisions to the 2023/24 global balance sheet.

USDA did note in its October Crop Production report that survey work for the field crop forecasts occurred primarily from September 28 to October 7. While much of the survey work did occur after the most severe weather from Hurricane Helene, the full impact of the storm may not be reflected in the current report.

Reference:

Meyer, L., & Dew, T. (2023). Cotton and wool outlook: December 2023 (Report No. CWS-23k) U.S. Department of Agriculture, Economic Research Service.

USDA. (2024). World Agricultural Supply and Demand Estimates. (WASDE-653) U.S. Department of Agriculture, World Agricultural Outlook Board. October 11.

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Stiles, Scott. “October WASDE Report Decreases U.S. Cotton Production, Mill Use, and Exports.” Southern Ag Today 4(43.3). October 23, 2024. Permalink

The USDA Risk Management Agency (RMA) published final 2023 county yields for upland cotton on July 3, 2024.  Upland cotton producers who purchased 2023 crop year Stacked Income Protection Plan (STAX) policies are now receiving final indemnity payments, thus contributing to current cash flow.  Based on RMA’s Summary of Business reporting as of July 15, total STAX indemnities across all states for 2023 will slightly exceed $352.7 million dollars.

STAX is a crop insurance product for upland cotton that provides coverage for a portion of the expected revenue in an area. Most often, the “area” will be a specific county, but may include other counties or production practices as necessary to obtain a credible amount of data to establish an expected yield and premium rate. STAX coverage is available in all counties where crop insurance for upland cotton is currently offered.

According to USDA-RMA data, 4.87 million acres of upland cotton were insured under STAX in 2023 (Figure 1).  This was 48 percent of nearly 10.1 million planted acres.  In the majority of cotton producing states, STAX participation is much lower than 48 percent.  The high concentration of U.S. cotton acreage in Texas inflates the level of total participation in the STAX program.  On a regional basis, the Southwest (Kansas, Oklahoma, and Texas) accounted for 70 percent of the total acres enrolled in STAX last year.  This region also has the largest concentration of upland cotton acreage in the U.S at almost 6.1 million acres.  Texas alone planted over one-half or 5.55 million acres of the U.S. upland cotton total in 2023. Furthermore, Texas accounted for 66 percent, or 3.2 million of the 4.87 million total acres insured under STAX. 

Figure 1. State-Level Percentage of Upland Cotton Planted Acres Enrolled in STAX (2023)

STAX pays a loss on an area-wide basis, and an indemnity is triggered when there is an area loss in gross revenue. Gross revenue is a function of both yield and price.  Common to many crop insurance products, STAX utilizes a futures price (i.e. December cotton futures) to determine the Projected and Harvest prices used to calculate indemnity payments.  For most states in 2023, revenue losses resulted solely from below-average yields, which means that Projected and Harvest prices in those states were either the same or Harvest prices were higher than Projected prices.  

The state level price discovery periods and the 2023 Projected and Harvest prices for cotton are summarized in Table 1.  Only Kansas, New Mexico and Oklahoma had a lower Harvest Price that may have contributed to revenue losses. Thus, for fourteen (14) of the seventeen (17) cotton producing states, any STAX payments were the result of actual yields being at least 10 percent less than the expected county/area yield (assuming the 90 percent area loss trigger was selected).

Table 1. State Level Crop Insurance Price Discovery Periods for Cotton.

State(s)	Projected Price Discovery Period	Harvest Price Discovery Period	2023 Projected Price/lb	2023 Harvest Price/lb
Southern TX	12/15 – 1/14	9/1 – 9/31	$0.81	$0.87
AL, AZ, AR, CA, FL, GA, LA, MS, NC, SC, central TX	1/15 – 2/14	10/1 – 10/31	$0.85	$0.85
MO, northern TX, TN, VA	2/1 – 2/28	10/1 – 10/31	$0.84	$0.85
KS, NM, OK	2/1 – 2/28	11/1 – 11/30	$0.84	$0.78

Since the inception of the STAX program ten years ago, in response to the provisions in the 2014 Farm Bill, some consideration can be given to how effective the product is as a price risk management tool.  Although coverage levels can vary, the majority of STAX policies in the U.S. would see indemnities begin when area revenue falls below 90% of its expected level.  In selecting a crop insurance product, growers may consider the likelihood of a STAX revenue loss being generated solely by declining prices.  Figure 2 illustrates that over the past decade Harvest Prices relative to Projected Prices have experienced a 10 percent or greater decline in three crop years in the period 2014 to 2023, with an average change of -1.2%. Thus, similar to 2023, STAX most often protects against either only yield effects or a combined yield and price effect.  

Figure 2. Percent Price Change from Projected to Harvest Price*, December Cotton Futures (2014 – 2023)

References

USDA-RMA (2024, July). USDA Risk Management Agency Summary of Business. 

URL: https://www.rma.usda.gov/SummaryOfBusiness.

USDA-RMA (2024, July). USDA National Agricultural Statistics Service QuickStats. 

URL: https://quickstats.nass.usda.gov/.

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Stiles, H. Scott, and Hunter D.Biram. “Review of 2023 STAX Payments and Implications for Price Risk Management in Cotton.” Southern Ag Today 4(31.1). July 29, 2024. Permalink