Global Demand Outlook - USDA

Global Demand OutlookCotton IncorporatedFebruary 2019

40

50

60

70

80

90

100

110

120

130

Global Mill‐Usemillion bales

Global Demand Accelerated

Drivers of Global Demand

6.1 billion

2000

7.4

2015Source: UN

Population growth


2000

7.4

2015Source: UN

+20%

6.1 billion

Population growth


2000

7.4

2015

8.6

2030Source: UN

+20%

+16%

6.1 billion

Population growth


Sources: UN, OECD GDP growth in real terms

2000

Population growth

Economic growth


2000 2015

+67%


Population growth

Economic growth


2000 2015 2030

+60%

+67%


Population growth

Economic growth


Sources: UN, OECD

Population growth

Economic growth

Per capita income growth strong,forecast to continue

40

50

60

70

80

90

100

110

120

130

Drivers of Global Demandmillion bales Global Demand Above Trend

Population growth

Economic growth


0.50

0.70

0.90

1.10

1.30

1.50

1.70

1.90

2.10

2.30

Drivers of Global Demandratio of Chinese cotton to Chinese polyester pricesCotton Prices Stabilized versus Polyester

Source: Emerging Textiles

Population growth

Economic growth


Headwind of share loss abating


45%

50%

55%

60%

65%

70%

Source: USDA, seasonally‐adjusted

Cotton’s Share of U.S. ApparelPopulation growth

Economic growth




0

5

10

15

20

25

30Man‐Made

Cotton


Bale Equiv. of U.S. Apparel Importsmillion bales

Population growth

Economic growth


Headwind of share loss abatingCotton Bale Volume ‐25%

(versus 2006)


0

5

10

15

20

25

30Man‐Made

Cotton


Bale Equiv. of U.S. Apparel Importsmillion bales

Consumer Spending +13%

Consumer Prices +3%

Total Bale Volume ‐6%(versus 2006)

Population growth

Economic growth


Headwind of share loss abatingCotton Bale Volume ‐25%

(versus 2006)



Change in Average Product Weight2006‐07 to 2017

‐5%

‐14%

‐9%

‐10%

Population growth

Economic growth




80

85

90

95

100

105

Source: Cotton Incorporated import database, seasonally‐adjusted

Population growth

Economic growth



Change in Average Product Weightindex 2006‐07=100

Headwind of wt loss has abated

40

50

60

70

80

90

100

110

120

130

Drivers of Global Demandmillion bales Global Demand Above Trend

Population growth

Economic growth




Drivers of Global DemandPopulation growth

Economic growth




Government support in China 0

1

2

3

4

5

6

7

8

China Vietnam Bangladesh India Turkey Pakistan

million balesChange in Mill‐Use 14/15 to 18/19

Weaker Macroeconomic EnvironmentVolatile exchange rates

104

106

108

110

112

114

116

Jan‐18 Mar‐18 May‐18 Jul‐18 Sep‐18 Nov‐18 Jan‐19

Jan 2006=100Dollar Climbs Sharply in Spring/Summer

Weaker Macroeconomic Environment

Apr‐18 Oct‐18 Jan‐19

IMF Forecasts for Global GDP Growth in 2019

3.9

3.7

3.5

Volatile exchange rates

Falling forecasts for global GDP

Uncertain trade environment

percent change, constant prices

U.S.‐China Tariff Situation$34 billion of goods on both sides25 percentage point (ppt) tariff increases for both

July 6

Aug 23

Sept 24

$16 billion of goods on both sides25ppt tariff increases for both

$200 billion of goods for U.S., 10ppt increase$60 billion of goods for China, 5‐10ppt increases

U.S. cotton on China’s July 6 list

U.S.‐China Tariff Situation

36%

14%8%8%

34%

U.S. Exports2010/11‐14/15

China

Turkey

Vietnam

Mexico

Other$34 billion of goods on both sides25 percentage point (ppt) tariff increases for both

July 6

Aug 23

Sept 24



U.S. cotton on China’s July 6 list


36%

14%8%8%

34%

U.S. Exports2010/11‐14/15

33%

20%16%

10%

11%

10%Chinese Imports2010/11‐14/15

China

Turkey

Vietnam

Mexico

Australia

Other

Other

Uzbekistan U.S.

India

$34 billion of goods on both sides25 percentage point (ppt) tariff increases for both

July 6

Aug 23

Sept 24



U.S. cotton on China’s July 6 listBrazil

Evolving Cotton Market

Price Spike(2010/11)

Chinese Gov’t Reserve System

Competing crops




Purchases(2011/12‐2013/14)

ImportQuotas

Competing crops




Sales(2014/15‐Present)

ImportQuotas

SometimeSoon

Competing crops

Chinese Cotton Situation

0

10

20

30

40

50

60

70total stocks

Chinese Stocks Retreat from Record Highsmillion bales

Sources: USDA (total stocks) & Cotlook (reserve stocks)

reforms enacted

first crop yearwith price guarantees

stocks drawn down since 2014 reforms2017/18 stocks are about half the peak still 30% higher than the average pre‐spike

Chinese Cotton SituationChinese Stocks Retreat from Record Highs

Sources: USDA (total stocks) & Cotlook (reserve stocks)


government to maintain some reservesannounced target of 2.5 million tonscurrent volume estimated at 2.7 mil tons

0

10

20

30

40

50

60

70private stocks

reserve stocks

million balesreforms enacted

first crop yearwith price guarantees

Chinese Cotton Situation

0

10

20

30

40

50

60production

mill‐use

China’s Persistent Production/Use Gapmillion bales

Source: USDA


government to maintain some reservesannounced target of 2.5 million tonscurrent volume estimated at 2.7 mil tons

what does this mean for Chinese imports?government has diminished ability to fill China’s production gapChinese imports will need to triple from 5 to 15 million bales when stocks stabilize

Meeting China’s Coming Import DemandIf China does not get the ten million additional bales of imports from the U.S., where could it come from??Machine‐Picking Exporters

Australia3.9 million bales of total exports in 2017/18

Brazil4.2 million bales of total exports in 2017/18+

Not enough to cover the increase alone,even if all went to China

Source: USDA


India

West Africa

Hand‐Picking Exporters

Australia

Brazil

3.9 million bales

4.2 million bales

5.2 million bales total exports in 2017/18


Source: USDA

Central Asia (Uzbekistan + Turkmenistan)1.3 million bales total exports in 2017/18+

Enough to cover the increase,Not enough to cover China’s production deficit,Still have to supply the rest of the world


India

West Africa

Hand‐Picking Exporters

Australia

Brazil

3.6 million bales (18/19)

6.2 million bales (18/19)



Source: USDA

Central Asia (Uzbekistan + Turkmenistan)1.3 million bales total exports in 2018/19

U.S.15.0 million bales

Meeting China’s Coming Import DemandIf China does not get the ten million additional bales of imports from the U.S., where could it come from??Difficult to see how China can get to ~15 million bales of imports without it somehow involving more U.S. exports – U.S. can still ship direct to ChinaCertain categories of imports not subject to additional tariff

– U.S. may need to fill in gaps left by other exporters who ship more to China

– U.S. fiber‐to‐yarn, yarn‐to‐China trade flow should be supported

Source: USDA


0

2

4

6

8

10

12

14

16

18

20

Aug

Sep

Oct

Nov Dec

Jan

Feb

Mar Apr

May Jun Jul

2018/19

2017/18

5‐Year Avg

million balesU.S. Export Commitment to the World

Source: USDA


0

2

4

6

8

10

12

14

16

18

20

Aug

Sep

Oct

Nov Dec

Jan

Feb

Mar Apr

May Jun Jul

2018/19

2017/18

5‐Year Avg

million balesU.S. Export Commitment to the World

Source: USDA

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

Aug

Sep

Oct

Nov Dec

Jan

Feb

Mar

Apr

May Jun Jul

2018/19

2017/18

5‐Year Avg

U.S. Export Commitment to Chinamillion bales

U.S. export commitment to China‐125k bales (‐17%) Crop‐year‐to‐date


‐0.2

‐0.1

0.0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8 change in million bales year‐over‐year (Jul‐Dec)Chinese Cotton Imports Jul‐Dec

Source: USDA & CN Customs

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

Aug

Sep

Oct

Nov Dec

Jan

Feb

Mar

Apr

May Jun Jul

2018/19

2017/18

5‐Year Avg

U.S. Export Commitment to Chinamillion bales

+0.8+80%

+0.5+200%

+0.4+305%

+0.4+145%

Australia Brazil India Other(mostlyAfrica)

U.S.Uzbek

‐0.1‐70% ‐0.1

‐20%

U.S. export commitment to China‐125k bales (‐17%) Crop‐year‐to‐date

Chinese fiber imports from all locations+1.7 million bales (+73%) year‐over‐year July‐December

‐0.2

‐0.1

0.0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8


‐0.2

‐0.1

0.0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8 change in million bales year‐over‐year (Jul‐Dec)Chinese Cotton Imports Jul‐Dec

Source: CN Customs

Chinese Cotton Yarn Importsmillion bales

Chinese fiber imports from all locations+1.7 million bales (+73%) year‐over‐year July‐December

+0.8+80%

+0.5+200%

+0.4+305%

+0.4+145%

Australia Brazil India Other(mostlyAfrica)

U.S.Uzbek

‐0.1‐70% ‐0.1

‐20%

Chinese yarn imports from all locations+130k bales (+4%) year‐over‐year July‐December

India Uzbek Vietnam

Pakistan U.S.

+0.3+30%

+0.1+60%

+2%

‐0.2‐20%

‐0.1‐7%

‐0.1‐75%

Other

‐0.2

‐0.1

0.0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8


0%

10%

20%

30%

40%

50%

60%

Aug‐14 Aug‐15 Aug‐16 Aug‐17 Aug‐18

All Fibers

Cotton‐Dominant

Chinese share of U.S. apparel imports (SA)U.S. Apparel Imports from China

Source: CN Customs and OTEXA

Chinese Cotton Yarn Importsmillion bales

+0.8+80%

+0.5+200%

Chinese yarn imports from all locations+130k bales (+4%) year‐over‐year July‐December

India Uzbek Vietnam

Pakistan U.S.

+0.3+30%

+0.1+60%

+2%

‐0.2‐20%

‐0.1‐7%

‐0.1‐75%

Other

Meeting China’s Coming Import DemandIf China does not get the ten million additional bales of imports from the U.S., where could it come from??Difficult to see how China can get to ~15 million bales of imports without it somehow involving more U.S. exports – U.S. can still ship direct to ChinaCertain categories of imports not subject to additional tariff

– U.S. may need to fill in gaps left by other exporters who ship more to China

– U.S. fiber‐to‐yarn, yarn‐to‐China trade flow should be supported

Source: USDA

Time of Transition

Cotton supply & demand

Macroeconomy

Trade ecosystem

Demand back above trend

Strong sustainability story

41

SustainabilityInfluences

Many consumers have grown more concerned about sustainability.

Source: CCI & Cotton Incorporated’s Global Environment Survey

82% 69% 64% 63%

62% 47% 42%

INDIA MEXICO CHINA ITALY

GERMANY U.S. U.K.

Consumers who say “Sustainability influences my clothing purchase decisions”:

Consumers Look to Cotton Cotton is often how consumers identify a clothing product as sustainable

Percent saying the following factors are safe for the environment:

Polyester

48%

I look to fiber to determine the sustainability of clothing items.

93%

Nylon

50%

Rayon

42%

91% Cotton

Source: CCI & Cotton Incorporated’s Global Environment Research

Microplastic pollution widespread

Source: Adventurers and Scientists for Conservation Microplastic Study

Microplastic Problem

Synthetic Fibers & Plastics

Increasing Concerns

Cotton is Natural

North Carolina State University research on microfiber degradation

Aquatic Biodegradation – Results0

10

20

30

40

50

60

70

80

90

% BIODE

GRA

DATION

0

Cotton GoneCotton Gone76%76% Cotton Gone76%

Polyester GonePolyester Gone4%4% Polyester Gone4%

DAYS25020015010050

Cotton is Natural

2018

2144

COTTON

POLYESTER

Source: Extrapolation from NCSU fiber degradation study

Extrapolation indicates it takes 126 years for polyester microfibers to fully degrade

That is roughly four generations

Implies today’s polyester microfiberswill be around until today’s babies’ great‐great grandchildren are born

Microplastic Research

Viscose – Chemicals & Deforestation

FIBER LABEL CHECKING INCREASES IN THE U.S.

Source: Cotton Incorporated’s Lifestyle Monitor™ Survey

PERCENT ALWAYS/USUALLY CHECK FIBER CONTENT LABELS

56% of Boomers check fiber labels

96 01 06 11 16 1795 00 05 10 15 18

46% of Gen Xers check fiber labels

96 01 06 11 16 1795 00 05 10 15 18

38% of Millennials check fiber labels

1700 05 10 15 18

*Partial year data, through June 2018

Global Demand OutlookCotton IncorporatedFebruary 2019

Global Demand Outlook - USDA

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