The Rupp Report: Extra-Fine Cotton Under Pressure

The latest Bremen Cotton Report says global extra-fine cotton production fell by 42 percent to
431,000 tons in 2008/09. This drop occurred because of a decline in prices and premiums in 2007/08
and strong competition from grains. After all the financial problems around the world, this is no
surprise. Raw material plays an important part in pricing. Prices were relatively high in August
2008, but they dropped almost continuously during 2008/09 because of the sharp fall in demand and
the accumulation of stocks in producing countries. In addition, unfavorable weather at planting
time has limited the extra-fine cotton area in Central Asia.

Global extra-fine cotton production is projected to be 10-percent lower in 2009/10, at
389,000 tons – the lowest on record since the middle of the 20th century. Global extra-fine cotton
area is expected to continue to decline by 15 percent to 330,000 hectares, while the average yield
is forecast higher at 1,190 kilograms per hectare.

Ups And Downs

In 2009/10, extra-fine cotton production is expected to increase by some 7,000 metric tons
(tons) in Sudan and by 2,000 tons in Israel. In Sudan, changes in credit and payment policies in
the Gezira Scheme are expected to encourage an increase in cotton area. However, production is
expected to continue to decline by 3,000 tons in China, some 9,000 tons in Egypt, 13,000 tons in
the United States, 8,000 tons in India, 16,000 tons in Central Asia and some 1,000 tons in Peru.

Demand Dropped

The sharp drop in demand for extra-fine cotton and the increase in inventories during 2008/09
are expected to affect farmers’ planting intentions in the United States, China, India, Central
Asia and Peru. In 2009/10, the US Pima crop may be the smallest in 14 years, at 81,000 tons. In
Egypt, the expected continued production decline to 109,000 tons – the smallest crop in more than a
century – is driven by a further decline in planted area. Unfavorable weather at planting time in
Central Asia reduced production expectations to 13,000 tons.


Global extra-fine cotton export commitments for 2008/09 rose by an estimated 17,000 tons
between mid-April and mid-June 2009, reaching 129,000 tons and slightly exceeding projected
exports. As of mid-June 2008, extra-fine cotton export commitments for 2007/08 reached 421,000

The US Pima export commitments for 2008/09 rose by 12,000 tons to 44,000 tons during the past
two months, exceeding projected exports. As of mid-June 2008, US Pima sales for 2007/08 totaled
188,000 tons, also exceeding projected exports. The competitiveness payments for US Pima, which
were not available during the first half of 2008/09, became available at the beginning of February
2009 at a rate of 18 cents per pound as a result of higher prices for US Pima compared to Egyptian
Pima. As of mid-June 2009, the rate declined to 4 cents per pound.

Export commitments by Egypt for 2008/09 rose by 4,000 tons during the past two months and are
estimated to be 39,000 tons as of mid-June 2009, including 20,000 tons of carryover sales from
2007/08. Higher prices for extra-fine cotton and the world economic crisis may have caused smaller
2008/09 sales compared with the previous year.

Future Expectations

Extra-fine cotton exports by producing countries fell by almost 70 percent in 2008/09 to an
estimated 128,000 tons. They are expected to rebound in 2009/10 to 184,000 tons – a 44-percent
increase driven by higher demand, but this level is expected to remain much smaller than in the
past decade.

Inventories of extra-fine cotton in producing countries are expected to increase from 299,000
tons at the beginning of 2008/09 to 323,000 tons at the end of the season, and to decline to
275,000 tons at the end of 2009/10. The stocks-to-use ratio in producing countries is forecast to
decline from 65 percent in 2008/09 to 49 percent in 2009/10.

July 7, 2009