Cotton is the single most important textile fiber in the world, accounting for over 40 percent of total world fiber production. While some 80 countries from around the globe produce cotton, the United States, China, and India together provide over half the world's cotton. The United States, while ranking second to China in production, is the leading exporter, accounting for over one-third of global trade in raw cotton. The U.S. cotton industry accounts for more than $25 billion in products and services annually, generating over 400,000 jobs in the industry sectors from farm to textile mill. ERS analyzes events in the U.S. and international cotton and textile markets that influence supply, demand, prices, and trade.
The U.S. cotton industry generates more than 400,000 jobs among the various sectors from farm to textile mill and accounts for more than $25 billion in products and services annually. Cotton is produced in 17 southern U.S. States from Virginia to California. Major concentrations include areas of:
- Texas High and Rolling Plains
- Mississippi, Arkansas, and Louisiana Delta
- California's San Joaquin Valley
- Central Arizona
- Southern Georgia
U.S. cotton is grown as an annual from seed planted each year, unlike in the tropics where cotton is grown as a perennial. Given the vast differences across the U.S. production area, the cotton growing season varies dramatically, as typical planting occurs between March and June and usual harvesting occurs between August and December.
The predominant type of cotton grown in the United States is Gossypium hirsutum, known as American Upland. The upland type, which usually has a staple length of 1 to 1 1/4 inches, accounts for about 97 percent of the annual U.S. cotton crop. Upland cotton is grown throughout the U.S. Cotton Belt as well as in most major cotton-producing countries. The balance of U.S.-grown cotton is Gossypium barbadense, commonly referred to as American Pima or extra-long staple (ELS). ELS cotton, which has a staple length of 1 1/2 inches or longer, is produced predominantly in California, Arizona, New Mexico, and southwest Texas, where it is particularly well adapted to the arid environmental conditions. The markets for ELS cotton are mainly high-value products such as sewing thread and expensive apparel.
Cotton acreage in the United States rose slightly during the 1990's from the previous two decades. In the 1970's and 1980's, area planted to cotton averaged about 12 million acres. By the 1990's, cotton acreage averaged about 14 million acres, and surpassed 15 million acres in 2000, only the second time since the early 1960's.
According to the Census of Agriculture, U.S. cotton farms numbered 31,493 in 1997, down from 34,812 in 1992. While the number has fallen, acreage per farm has risen. As a result, the number of large farms (over 1,000 acres) has continued to increase while the number of small farms (under 100 acres) declines.
The world's four largest producing and consuming countries are China, the United States, India, and Pakistan. Together these four account for around 60 percent of world cotton production and consumption. The next three largest consuming countries are Turkey, Brazil, and Mexico, all of which produce cotton but are often large importers. While cotton is generally a Northern Hemisphere crop, about 10 percent of the world's output comes from south of the equator (primarily Brazil and Australia) and is harvested during the Northern Hemisphere's spring.
Cotton production in the United States during the 1990's has, like area, averaged above the previous two decades paralleling advances in technology (seed varieties, fertilizers, pesticides, and machinery) and in production practices (reduced tillage, irrigation, crop rotations, and pest management systems). The 1994 crop of nearly 19.7 million bales was a record. U.S. cotton consumption also peaked during the 1990's as consumer demand for cotton apparel products like denim increased dramatically. In 1997, U.S. mills used 11.3 million bales of raw cotton, near the record set in the early 1940's.
Trade is particularly important for cotton. Thirty percent of the world's consumption of cotton fiber crosses international borders before processing, a larger share than for wheat, corn, soybeans, or rice. Through trade in yarn, fabric, and clothing, much of the world's cotton again crosses international borders at least once more before reaching the final consumer.
The cotton industry continues to face many of the supply and demand concerns confronting other field crops. However, since cotton is used primarily in manufactured products, the industry faces additional challenges associated with the economic well-being of downstream manufacturing industries.
The United States is the world's leading cotton exporter, accounting for 25 percent of world trade during the 1990's. In recent years, six markets have accounted for 40 percent of world imports: the European Union (EU), Indonesia, China, Brazil, South Korea, and Thailand. The United States exports to all these major markets, but accounts for only a small share of imports by the EU and Brazil. These markets are largely served by the leading U.S. competitors in Central Asia, West Africa, and the Southern Hemisphere. The United States ranks second in world cotton production, third in world cotton consumption, and third in the size of its ending stocks. Imports by the United States have amounted to less than 1 percent of the world's total on average in recent years, but have grown from virtually zero during the two decades before 1994. (For trade details, see Foreign Agricultural Trade of the United States.)
China is the world's largest producer and consumer of cotton and is believed to hold 30 percent of world ending stocks. Because of the size of China's cotton sector, shifts in its production and policy can have considerable impacts on the global cotton market. China's cotton production fluctuated substantially during the 1990's as the adjustment of government-set purchasing prices failed to keep pace with changes in agriculture and the economy. China's imports, ending stocks, and exports ebbed and flowed as China's policymakers lowered and raised procurement prices, opened and closed import quotas, and offered and withdrew export subsidies. China was at times the world's largest importer (1994/95-1996/97), but in 1998/99 was the world's fourth-largest exporter.
During 1999/2000, China finally extended to its cotton producers limited rights to sell cotton to buyers other than the government's Cotton and Jute Bureau, and withdrew from attempts to fix domestic cotton prices. These changes came more than a decade after similar reforms for grains and oilseeds, and the impact on China's cotton sector remains unclear.
China: International Agricultural and Trade Report China's Cotton Sector India is the third-largest producer of cotton and the second-largest consumer. During the 1990's, India reoriented its economic development strategy towards greater foreign trade and investment. As economic growth accelerated and textile exports rose, India's cotton consumption grew at a rate well above the world average. Its share of world cotton consumption rose from 10 percent in 1990/91 to 15 percent in 1999/2000.
Production rose substantially as well, but imports have begun to replace exports as the norm for India's trade position. Net imports in 1999/2000 were estimated at 1.2 million bales. While not large on a global basis, these imports were the largest since India last steadily imported hundreds of thousands of bales during the 1960's, and were probably the largest in India's long history of producing and consuming cotton.
Uzbekistan, the world's largest exporter of cotton after the United States, supplies about 16 percent of the cotton traded internationally. Cotton output in Uzbekistan peaked a few years before the country achieved independence in 1991. Since then, the impact of decades of environmental damage, a desire to increase self-sufficiency in grains, and the economic collapse of Russia, once Uzbekistan's leading customer, has resulted in a 40-percent decline in Uzbekistan's production and exports.
Economic reforms in Uzbekistan have not yet provided cotton farmers a viable alternative to selling their output to the state. According to the World Bank, the government is transferring resources from cotton producers to the textile industry through an overvalued exchange rate, government-set prices, and delayed payments to farmers. Turkmenistan, the second-largest cotton producer in Central Asia and another major exporter, also retains significant vestiges of centralized planning for cotton and the rest of its economy.
World cotton trade shrank during the 1990's as Russia's textile industry, one of the world's largest, collapsed. World cotton consumption stagnated during most of the 1990's as Russia's collapse offset increased consumption by India, Turkey, Mexico, Pakistan, and the United States. In 1999/2000, world cotton consumption rose sharply, and another record high is expected in 2000/01. However, world trade remains close to the average level of the last decade, since recent cotton consumption increases have occurred largely in countries producing most of their own cotton.The future of U.S. cotton exports will depend on:
consumption gains in markets relying largely on imported cotton, like Mexico and Southeast Asia, and the degree to which cotton producers like China, Turkey, and Brazil rely on imports rather than domestic production to meet the growing needs of their textile industries. Textile industries in developed countries will lose protection from imports in 2005 when the World Trade Organization ends quantitative trade restrictions that the Multi-Fiber Arrangement had allowed. But the outlook for raw cotton consumption by developing countries will improve and could increase U.S. cotton exports.
The Economic Research Service (ERS) conducts a variety of ongoing market outlook activities on the cotton industry. Details on major changes and events in the U.S. and world cotton markets are published 10 months of the year in ERS's Cotton and Wool Outlook report (previously published outlook reports are also available). The Cotton and Wool Yearbook provides a recap of the previous cotton season and an outlook for the current marketing year.
ERS—with USDA's World Agricultural Outlook Board, Agricultural Marketing Service, Farm Service Agency, and Foreign Agricultural Service—develops USDA's monthly World Agricultural Supply and Demand Estimates (WASDE) report. The WASDE provides the latest domestic and global cotton supply and utilization outlook.
Long-term supply and utilization projections for cotton are available through the USDA Agricultural Baseline Projections briefing room. For further information on the supply and demand issues underlying the 2004 baseline, see USDA upland cotton baseline, 2004-13.
The Farm Security and Rural Investment Act of 2002 (2002 Farm Act) provides cotton producers access to direct payments, counter-cyclical payments, and marketing loan benefits. In addition, many producers benefit from subsidized crop and revenue insurance available under previous legislation. Cotton producers also benefit indirectly from programs that increase cotton use through promotion and trade liberalization.
Farmers are given almost complete flexibility in deciding which crops to plant. Participating producers are permitted to plant all cropland acreage on the farm to any crop, with some limitations on planting fruits and vegetables. The land must be kept in agricultural use (which includes fallow), and farmers must comply with certain conservation and wetland provisions.
Below is general information on government programs affecting cotton producers' management decisions and incomes. For further information, visit the program provisions section in the Farm and Commodity Policy briefing room.Direct and counter-cyclical payments
Under the 2002 Farm Act, farm owners and operators have a one-time opportunity—based on historical production—to update base acreage for both direct and counter-cyclical payments. The 2002 Farm Act sets payment acreage at 85 percent of base acreage. Payment yields for direct payments remain at levels specified by the 1996 Farm Act. For counter-cyclical payments, however, farmers can update their payment yields at the same time they initially enroll in the program. To receive payments, participants must enroll annually and maintain conservation plans, including compliance with conservation and wetland provisions. Farmers receive their direct payments (and counter-cyclical cotton payments in years of low prices), regardless of the crop planted on their cropland that year.
Direct decoupled payments are available for eligible landowners and producers of upland cotton who enter into an annual agreement. The amount of the direct payment is equal to the product of the payment rate, payment acres, and payment yield. The 2002 Farm Act sets the payment rate for upland cotton at 6.67 cents per pound for crop years 2002-07.
Counter-cyclical payments are available to contract holders whenever a program crop's target price is greater than the effective price. Target prices for crop years 2002-07 are specified in the 2002 Farm Act. The upland cotton target price is 72.4 cents per pound. The effective price is equal to the sum of 1) the direct payment rate for the commodity, and 2) the higher of the national average farm price for the marketing year or the national loan rate for the commodity. The minimum effective upland cotton price is 58.67 cents per pound—the sum of the direct payment (6.67 cents) and the loan rate (52.00 cents). The maximum payment rate for upland cotton is 13.73 cents per pound—the target price (72.40 cents) minus the minimum effective price (58.67 cents). The payment amount equals the product of the payment rate, payment acres, and the counter-cyclical payment yield.
For further information on acreage base, payment acres, and payment yield for calculating direct and counter-cyclical payments, as well as conservation requirements, visit the program provisions section in the Farm and Commodity Policy briefing room.Marketing assistance loans and loan deficiency payments
The marketing assistance loan program is designed to assist producers when market prices are low. The program allows producers to repay nonrecourse commodity loans at a rate less than the original loan rate plus accrued interest, when the adjusted world price (AWP) for upland cotton (as calculated by USDA) is below the loan rate. The payment rate under the program is the difference between the AWP and the national average loan rate. Loan rates are established in legislation, with the upland cotton loan rate fixed at 52.0 cents per pound for crop years 2002-07.
The 2002 Farm Act extends nonrecourse commodity loans with marketing loan provisions, but eliminates the requirement that producers enter into an agreement for direct payments in order to be eligible for loan program benefits. All current upland cotton production is eligible. Farmers can receive government payments in two ways: marketing loan gains (MLG) or loan deficiency payments (LDP). A MLG occurs when producers repay their nonrecourse commodity loans to USDA's Commodity Credit Corporation (CCC) at a rate less than the loan rate. The difference between the loan rate and the repayment rate is the MLG. Alternatively, producers can opt to forego placing the commodity under loan and receive an LDP when the AWP is below the national loan rate. The difference between the AWP and the loan rate is the LDP.
For details on marketing assistance loans, MLGs, and LDPs, visit the program provisions section in the Farm and Commodity Policy briefing room.
The loan rate for extra-long staple (ELS) cotton is fixed at 79.77 cents per pound for crop years 2002-07. Unlike upland cotton, however, repayment rates for ELS marketing assistance loans are equal to the established loan rate, plus interest.
Special program provisions for cotton are also included in the farm legislation with the aim of keeping U.S. cotton competitive on the world market.Payment limits and commodity certificates
The 2002 Act sets the payment limit for direct payments at $40,000 per person and for counter-cyclical payments at $65,000. Marketing loan benefits (MLGs and LDPs) are limited to $75,000 per person. Producers with an adjusted gross income of more than $2.5 million (averaged over 3 years) are not eligible for payments unless more than 75 percent of the adjusted gross income is from agriculture.
The three-entity rule is maintained. Under this rule, an individual farmer could receive up to twice the payment limit per year applicable for direct payments, counter-cyclical payments, and marketing loan gains on three separate farming operations (a full payment on the first operation and up to a half payment for each of the two additional entities).
Authority for commodity certificates is retained. Commodity certificates can be purchased at the prevailing AWP. The certificates are available for producers to use immediately in acquiring crop collateral pledged to CCC for a commodity loan. For producers facing program payment limits, this provides an opportunity to benefit from the lower loan repayment rates.Crop and revenue insurance
Adverse weather, as well as insect and weed infestations, can reduce a farmer's yields and result in below-normal revenue in any year. Low prices can also reduce revenue. Cotton producers can purchase crop insurance to guard against yield risk, and can buy revenue insurance for protection against yield and revenue losses. USDA's Risk Management Agency pays a portion of producers' premium costs for insurance policies and also pays some of the delivery and administrative costs of private insurance companies that handle policy sales.
Export programs and policies Export programs administered by USDA's Foreign Agricultural Service (FAS) help promote U.S. cotton in foreign markets. These programs include the Export Credit Guarantee Programs, the Market Access Program, the Foreign Market Development Program, and the Emerging Markets Program.
The Export Credit Guarantee Programs (GSM-102 and GSM-103) allow commercial financing of U.S. agricultural exports. Export credit guarantees are designed to help foreign importers facing foreign exchange constraints and needing credit to purchase commodities. The CCC does not provide financing, but guarantees payments due from foreign banks, which allows U.S. financial institutions to offer competitive credit terms to foreign banks. The GSM-102 program covers private credit extended for up to 3 years, while GSM-103 covers private credit extended for 3-10 years. In essence, the credit programs assure U.S. exporters that they will be paid.
The Market Access Program (MAP) aids in the creation, expansion, and maintenance of foreign markets for U.S. agricultural products. MAP forms partnerships between USDA's CCC and nonprofit trade associations, cooperatives, trade groups, or small businesses to share the cost of overseas marketing and promotional activities. MAP partially reimburses program participants for these activities, which include consumer promotions, market research, trade shows, and trade servicing.
The Foreign Market Development Program, also known as the Cooperator Program, aids in the creation, expansion, and maintenance of long-term export markets for U.S. agricultural products. The program enlists private sector involvement and resources in coordinated efforts to promote U.S. products to foreign importers and consumers around the world. CCC funds are used to partially reimburse cooperators conducting approved overseas promotion activities.
The Emerging Markets Program uses various forms of technical assistance to promote market development, to improve market access, or to assist in the development of emerging market economies. CCC funding is provided on a cost-share basis to U.S. agricultural and agribusiness organizations for these purposes. The program is not targeted at end-use consumers, but rather complements other marketing programs administered by USDA.
For more details on these and other export programs, visit the program provisions section in the Farm and Commodity Policy briefing room. The FAS web site also provides export program information.Environment and conservation programs
The 2002 Farm Act expands funding for all conservation programs and significantly increases support for conservation practices on both cropped and fallowed land. Programs, such as the Environmental Quality Incentives Program and the new Conservation Security Program, provide assistance on lands in production. Land retirement programs—including the Conservation Reserve Program, the Conservation Reserve Enhancement Program, the Wetlands Pilot Program, and the Wetlands Reserve Program—remove land from production.
For details on environmental and conservation programs, visit the Conservation and Environmental Policy briefing room.
Cotton and Wool Yearbook provides in-depth information, analysis, and data on U.S. and international cotton and wool market developments.
Size and Distribution of Market Benefits from Adopting Biotech Crops estimates the size and distribution of market benefits from adopting Bacillus thuringiensis (Bt) cotton, herbicide-tolerant cotton, and herbicide-tolerant soybeans in 1997. Impacts on U.S. farmers, U.S. consumers, biotechnology developers, germplasm suppliers, and producers and consumers in other countries are assessed.
USDA Upland Cotton Baseline, 2004-13 provides background on supply and demand trends for cotton, underlying the baseline projections in USDA Agricultural Baseline Projections to 2013, and summarizes key results for the U.S. cotton sector.
Other USDA agencies, other U.S. government sites, universities, and trade associations contain additional information on the cotton and textile industries.