THE OUTLOOK FOR COTTON SUPPLY IN 2009/10

INTERNATIONAL COTTON ADVISORY COMMITTEE THE OUTLOOK FOR COTTON SUPPLY IN 2009/10 Discover natural f i b r e s 2 0 0 9 September 2009

THE OUTLOOK FOR COTTON SUPPLY IN 2009/10 September 2009 A Report by the Secretariat of the International Cotton Advisory Committee Price: US$170.00 (hard copy) US$145.00 (internet version) Washington DC USA

ICAC SUPPLY AND DISTRIBUTION OF COTTON August 10, 2009 Years Beginning August 1 2005 2006 2007 2008 2009 2010 Est. Proj. Proj. Million Metric Tons BEGINNING STOCKS WORLD TOTAL 11.613 12.303 12.707 12.333 12.64 12.66 CHINA (MAINLAND) 2.622 3.991 3.653 3.321 3.84 3.69 USA 1.196 1.321 2.064 2.187 1.31 1.21 PRODUCTION WORLD TOTAL 25.639 26.718 26.171 23.376 23.51 23.23 CHINA (MAINLAND) 6.616 7.975 8.071 8.025 7.47 7.47 INDIA 4.097 4.760 5.355 4.930 5.49 5.32 USA 5.201 4.700 4.182 2.790 2.97 2.94 PAKISTAN 2.194 2.147 1.894 1.960 2.08 2.06 BRAZIL 1.038 1.524 1.602 1.193 1.13 1.14 UZBEKISTAN 1.210 1.171 1.206 1.000 1.03 1.02 OTHERS 5.283 4.441 3.861 3.478 3.34 3.29 CONSUMPTION WORLD TOTAL 24.951 26.360 26.321 22.979 23.49 23.83 CHINA (MAINLAND) 9.439 10.600 10.900 9.000 9.27 9.46 INDIA 3.655 3.908 3.986 3.767 3.97 4.13 PAKISTAN 2.532 2.633 2.637 2.452 2.55 2.63 EAST ASIA & AUSTRALIA 1.884 1.869 1.843 1.670 1.68 1.67 EU, C. EUR. & TURKEY 2.112 2.084 1.751 1.396 1.34 1.29 BRAZIL 0.973 0.992 1.007 0.937 0.94 0.94 USA 1.278 1.074 0.999 0.773 0.76 0.74 CIS 0.633 0.682 0.664 0.596 0.59 0.58 OTHERS 2.444 2.518 2.533 2.388 2.39 2.40 EXPORTS WORLD TOTAL 9.732 8.101 8.356 6.456 6.80 7.04 USA 3.821 2.833 2.973 2.896 2.31 2.29 BRAZIL 0.429 0.283 0.486 0.600 0.29 0.27 UZBEKISTAN 1.020 0.980 0.887 0.560 0.76 0.86 CFA ZONE 1.010 0.924 0.589 0.472 0.47 0.54 INDIA 0.751 0.960 1.530 0.425 1.40 1.42 AUSTRALIA 0.628 0.465 0.265 0.230 0.35 0.43 IMPORTS WORLD TOTAL 9.610 8.142 8.316 6.369 6.80 7.04 EAST ASIA & AUSTRALIA 1.774 1.899 1.860 1.642 1.71 1.65 CHINA (MAINLAND) 4.200 2.306 2.511 1.520 1.66 1.99 EU, C. EUR. & TURKEY 1.275 1.344 1.085 0.816 0.92 0.87 PAKISTAN 0.352 0.502 0.851 0.460 0.55 0.62 CIS 0.333 0.322 0.271 0.238 0.23 0.00 TRADE IMBALANCE 1/ -0.122 0.041-0.041-0.087 0.00 0.00 STOCKS ADJUSTMENT 2/ 0.123 0.005-0.183 0.000 0.00 0.00 ENDING STOCKS WORLD TOTAL 12.303 12.707 12.333 12.643 12.66 12.07 CHINA (MAINLAND) 3.991 3.653 3.321 3.844 3.69 3.69 USA 1.321 2.064 2.187 1.309 1.21 1.12 ENDING STOCKS/MILL USE (%) WORLD-LESS-CHINA (M) 3/ 54 57 58 63 63 58 CHINA (MAINLAND) 4/ 42 34 30 43 40 39 COTLOOK A INDEX 5/ 56.15 59.15 72.90 61 60* 1/ The inclusion of linters and waste, changes in weight during transit, differences in reporting periods and measurement error account for differences between world imports and exports. 2/ Difference between calculated stocks and actual; amounts for forward seasons are anticipated. 3/ World-less-China (Mainland) ending stocks divided by World-less-China (Mainland)'s mill use, multiplied by 100. 4/ China (Mainland)'s ending stocks divided by China (Mainland)'s mill use, multiplied by 100. 5/ U.S. cents per pound. * The price projection for 2009/10 is based on the ending stocks/consumption ratio in the world-less-china (Mainland) in 2007/08 (estimate), in 2008/09 (estimate) and in 2009/10 (projection), and on the ratio of Chinese net imports to world imports in 2008/09 (estimate) and 2009/10 (projection). 95% confidence interval: 51 to 71 cents per pound.

WORLD COTTON SUPPLY SLIGHTLY HIGHER IN 2009/10 International cotton prices decreased significantly in 2008/09, driven by a fall in cotton mill use worldwide caused by the world financial and economic crisis. However, government support to cotton farmers in the largest producing countries increased significantly. As a result, world cotton area is expected to decline only marginally in 2009/10, and world cotton production is expected to remain stable at 23.5 million tons. World cotton area is projected down by 1% in 2009/10 to 30.4 million hectares, the lowest since 2002/03. This is the third consecutive season of decline in world cotton area. Lower cotton returns in 2008/09, more attractive prices for competing crops, and expected difficulties in financing inputs are encouraging farmers to continue switching to alternative crops. Cotton area is expected to decline significantly in China (Mainland), Uzbekistan, Brazil, Turkmenistan, Turkey, and Tanzania. However, cotton area is expected to increase in India, the United States and Pakistan. Weather in the northern hemisphere between March and mid-july 2009 was overall more favorable than in 2008/09, despite some regional difficulties. The world average yield is expected to increase slightly to 773 kg/ha in 2009/10. The world cotton supply (beginning stocks plus production) is projected at 36.2 million tons in 2009/10, 1% higher than last season. Beginning stocks will account for 35% of world supply, slightly up from the previous season. Beginning stocks have accounted for an increasing share of world cotton supply since 2004/05. Production is expected to decline by 7% in China (Mainland), to 7.5 million tons, by 5% in Brazil, to 1.1 million tons, and by 4% in Uzbekistan, to 1.0 million tons. Production is also expected to decline in the CFA zone, Turkey, Greece and Turkmenistan. However, it is expected to increase significantly in India, to 5.5 million tons, in the United States, to almost 3.0 million tons, and in Pakistan to 2.1 million tons. Production could continue to increase in Australia to over 400,000 tons. WORLD COTTON AREA Million Hectares WORLD COTTON AREA AND YIELD Kg/Ha Million ha Area Yield RESPONSE OF WORLD COTTON AREA TO PRICES WORLD COTTON SUPPLY Supply 05/06 09/10 06/07 % price variation (Season S-1) 07/08 08/09 Production % area variation (Season S)

2 WORLD PRODUCTION Year-to-Year Changes in Million Tons WORLD COTTON PRODUCTION Million Tons WORLD SUPPLY AND USE Million Tons WORLD IMPORTS Production Consumption Million Tons WORLD EXPORTS After a significant drop in 2008/09, world cotton mill use is expected to recover slightly in 2009/10, to 23.5 million tons (+2%), as global economic growth returns to positive grounds. Cotton mill use is expected to recover partially in China (Mainland), India, and Pakistan, the three largest cotton consumers. Mill use in many other countries is projected to remain stable or continue to decline, but more slowly. The share of Asia in world mill use is expected to continue to increase to 77% in 2009/10. World cotton imports are projected to rebound by 7% to 6.8 million tons in 2009/10. The Secretariat expects Chinese imports to increase slightly to 1.7 million tons. Bangladesh, Turkey and Pakistan are also expected to import more cotton in 2009/10. Significant uncertainty remains regarding Chinese cotton supply and use statistics, and government decisions regarding import quotas; this may affect the accuracy of the 2009/10 Chinese import forecast. As competition between exporting countries should intensify in 2009/10, exports from the United States and Brazil are expected to decline significantly, to 2.3 million tons (-20%) and 290,000 tons (-52%), respectively. After a jump in 2008/09, their shares of world exports are forecast to return to lower levels (34% and 4%, respectively). However, exports by India are expected to more than triple to 1.4 million tons, while exports from Uzbekistan could rebound to 760,000 tons. Australian exports are also expected to increase significantly to almost 350,000 tons. Exports from the CFA zone could remain stable at 470,000 tons.

3 WORLD ENDING STOCKS STOCKS-TO-MILL USE RATIO World less China (Mainland) World Season-average (US cents/lb) COTLOOK A INDEX As world cotton production and mill use are expected to be in balance in 2009/10, world-ending stocks are forecast stable at 12.7 million tons. The Secretariat forecasts a seasonaverage Cotlook A Index of 60 cents per pound in 2009/10, essentially the same as in 2008/09 1. average 73/74 97/98 = 74 cents/lb average 98/99 06/07 = 56 cents/lb this played a role in the slight increase in cotton area that season. China (Mainland): Smaller Production Cotton area in China (Mainland) increased from 3.8 million hectares in 1999/00 to 6.3 million hectares in 2007/08, almost 20% of world cotton area. In recent seasons, firm domestic seedcotton prices and rising cotton yields have been the main factors pushing cotton area upwards, despite new government subsidies for grain production. The government started providing subsidies to encourage the use of high quality cotton planting seeds in 2007/08, but it is not clear whether Most of the recent expansion in Chinese cotton area took place in the Northwest and Yellow River regions, in particular in the provinces of Xinjiang, Shandong and Hebei. Expansion in the use of biotech cotton in the Yellow River region contributed to the rebound in cotton production there in the first half of this century, but production has declined in recent seasons. This region now represents around 42% of total cotton area. In Xinjiang, agronomic conditions especially suitable for cotton, high yields, low pest pressure, large fields allowing economies of scale and increased mechanization, and government policies have encouraged plantings. The share of Xinjiang in total cotton area in China (Mainland) increased in the last few seasons and is now estimated at 31%. The Xinjiang Production and Construction Corps accounts for around 40% of cotton production in Xinjiang. SUPPLY: CHINA MAINLAND Cotton area in the Yangtze River valley declined slightly in recent seasons, and now accounts for around 23% of total cotton area. In 2008/09, Chinese cotton area remained approximately the same as in the previous season. However, the average yield declined slightly, and farmers experienced a significant increase in production costs. In addition, seed cotton prices were lower than in the previous season. Considerable government purchases for the national reserve between October 2008 and March 2009 stopped this decline and pushed prices gradually higher. However, this was not sufficient to prevent a decline in average seedcotton prices paid to farmers. Cot- Supply 1) Price forecast as of August 10, 2009; the 95% confidence interval ranges from 51 to 71 cents per pound. Production

4 ton area is estimated down by 9% in 2009/10, to 5.7 million hectares, the smallest area in four years. Assuming an improvement in weather and better yields, production is expected to decrease by 7% to 7.5 million tons. Evaluating cotton stocks in China (Mainland) is extremely difficult because government estimates for consumption and stocks are not available, and official production estimates have recently come under scrutiny. Year-to-year changes in Chinese stocks are better known than their actual level. Between 1994/95 and 1999/00, it is estimated that beginning stocks in China (Mainland) more than doubled, from 2.2 to 5.8 million tons, as the Chinese government policy during this period was to increase the national reserve. In September 1999 China (Mainland) officially abandoned its policy of high procurement prices with an aim to reduce domestic cotton stocks and become more responsive to price fluctuations in the international market. The stock-reduction policy was very successful, assisted by booming mill cotton consumption. Beginning stocks declined every season between 2000/01 and 2004/05, reaching 2.4 million tons. However, they increased slightly in 2005/06, and significantly in 2006/07 to 4.0 million tons, due to very large imports during 2005/06 (some of which were used to rebuild the national reserve). Beginning stocks decreased again in 2007/08 and 2008/09, to 3.3 million tons. However, they rebounded to 3.8 million tons in 2009/10, due to the large purchases made by the China National Cotton Reserves Corporation during 2008/09. Chinese stocks are expected to decline by 4% during 2009/10, to 3.7 million tons. South Asia: Expected Record Production Production in South Asia is expected to increase by 10% in 2009/10, to 7.7 million tons. This would be a record production in this region. South Asia will account for 33% of global production this season, up from 30% in 2008/09 and 25% in 2005/06. Cotton area in India dropped below 8 million hectares in 2002/03 and 2003/04, but bounced back to almost 8.8 million hectares in 2004/05. Cotton area has since increased almost each season, remaining over 9 million hectares. Recent increases in cotton area in India can be attributed to significant increases in yields as well as firm domestic prices. The average yield increased from 302 kilograms per hectare in 2002/03 to a record of 567 kilograms per hectare in 2007/08. Expansion in the area under biotech cotton over this period significantly contributed to these yield increases. In addition, the use of high yielding hybrids and modern agronomic practices expanded in recent years. Domestic cotton prices are supported by an expansion in domestic mill use as well as export demand. Cotton yields in 2008/09 were affected by unfavorable weather and declined to an estimated 7% to 526 kg/ha. However, farmers returns from cotton were protected due to government support to domestic seed cotton prices, through seedcotton purchases at increased Minimum Support Prices. As a result, cotton area in India is expected to increase significantly in 2009/10, to 9.8 million hectares (+5%), accounting for a third of the world total. Most of this increase is expected to take place in the northern region due to increased cotton producers incomes in 2008/09. Assuming more favorable weather than in 2008/09 and continued improvement in crop management techniques, the average yield is forecast to recover to 560 kg/ha. The expansion in biotech cotton area is expected to increase marginally in 2009/10. Production of cotton is projected to rise by 11% to a record of 5.5 million tons. The government of India significantly increased seedcotton minimum support prices (MSPs) for the 2008/09 crop. Government agencies purchased around 2.15 million tons of cotton from the 2008/09 crop at these MSPs, or a little SUPPLY: SOUTH ASIA PRODUCTION: SOUTH ASIA Supply India Production Pakistan

5 over 40% of estimated production. By mid-july 2009, they had sold almost 1.8 million tons of the amounts procured. No changes in the MSPs have been announced for the 2009/10 season. However, it is not known whether government purchases of seedcotton at the MSPs will be as sizeable during 2009/10 as it was in the last season. Cotton stocks in India increased significantly during 2008/09 due to reduced cotton mill use and much lower exports. They reached an estimated record of 2.4 million tons at the end of July 2009. Cotton stocks are expected to continue to increase to 2.7 million tons during 2009/10. However, as cotton mill use and exports are expected to recover, the stocks-to-use ratio could decline from 58% to 49%. Production in Pakistan reached a record of 2.4 million tons in 2004/05 but declined in each of the following three seasons, reaching an estimated 1.9 million tons in 2007/08. It recovered slightly in 2008/09, to almost 2.0 million tons, thanks to a rebound in yields. The average yield recovered to 688 kg/ha, as weather was overall favorable, pest infestations were more limited, and pest management was improved. In addition, local seedcotton prices remained firm during 2008/09. Assuming an average yield slightly lower than in the previous season, cotton production is forecast at 2.1 million tons, up by 6% from 2008/09. Cotton stocks in Pakistan declined by an estimated 14% in 2008/09, to 720,000 tons. They are expected to increase to 750,000 tons in 2009/10. Central Asia: Production Down for the Second Consecutive Season Cotton production in Central Asia fluctuated between 1.4 and 1.6 million tons between 1996/97 and 2003/04. Higher yields boosted production to 1.7 million tons in 2004/05 and 1.8 million tons in the following three seasons. Production dropped to 1.54 million tons in 2008/09 due to a lack of irrigation water, which affected both cotton area and yields. Million Tons PRODUCTION: CENTRAL ASIA Plantings declined by 10% in 2009/10 to 2.3 million hectares, due to some farmers switching to production of food crops and adverse weather at planting time. Assuming a stable yield, production is forecast at 1.46 million tons, the lowest in six years. Most countries in the region are expected to experience declines in cotton production in 2009/10. However, Uzbekistan is expected to produce a slightly larger crop of 1.03 million tons, up by 3% from last season and accounting for 70% of the regional output. Cotton stocks in Central Asia jumped to 0.9 million tons in 2008/09, due to a drop in exports. They are expected to remain at that level in 2009/10. Turkey: Further Drop in Production Turkish production reached a peak of 922,000 tons in 2001/02 and remained around 900,000 tons until 2004/05 before declining steadily in the following seasons because of declines in area, to reach 450,000 tons in 2008/09. Seedcotton prices declined in 2008/09 and cotton production costs increased, resulting in a decline in farmers net returns from cotton production. In addition, prices of competing crops such (grains in particular), despite being lower than last year, remain more attractive than cotton prices. Accordingly, cotton area continued to decline in 2009/10 to an estimated 329,000 hectares. Production in Turkey is expected to decrease by PRODUCTION: TURKEY 9% to 410,000 tons in 2009/10. This would be the smallest crop since 1970/71. Cotton stocks are expected to remain Million Tons stable at around 325,000 tons in 2009/10. Middle East: Production Continues to Decline Cotton production in the Middle East is expected to decrease for the second consecutive season in 2009/10, to 320,000 tons, 6% lower than in the previous season. The decline is driven by further reduction in cotton area. Stocks are expected to decrease slightly to 150,000 tons.

6 Production in Syria is expected to continue to decline by 5% to 230,000 tons, driven by a decrease in planted area. Cotton output in Iran is also expected to continue declining in 2008/09, to 63,000 tons. A decline in yields and in seedcotton prices in 2008/09 convinced some farmers to reduce their cotton area. Cotton production in Israel is projected up by 7% to 10,000 tons this season, assuming higher yields than last season. A dry winter prevented cotton area to rebound from the 2008/09 low level. Almost all the area is planted to extra-fine cotton this season (Pima and Acalpi). Africa: Slightly Lower Production Cotton production in Africa rose to a record of 2.0 million tons in 2004/05, but has since significantly declined, reaching 1.09 million tons in 2008/09. African cotton production is expected to continue to decrease slightly in 2009/10 to 1.07 million tons. Production is expected to remain stable in North Africa, and to decrease slightly in the CFA zone and in East and Southern Africa. After an increase in 2008/09 to almost 700,000 tons, stocks could remain stable in 2009/10. After a 46% decline in 2008/09, cotton area in Egypt continued to decline by 9% in 2009/10, to 121,000 hectares. Despite higher cotton prices received by farmers in 2008/09, a government decision to increase the area that could be sown to rice in 2009/10 negatively affected cotton plantings. Production is expected to decline by 5% to 103,000 tons in 2009/10. This would be the lowest in over a century. Egyptian extra-long staple production is expected to continue to decline significantly for the third consecutive season, to 13,000 tons, while long staple production is expected to increase to 91,000 tons. Cotton area in Sudan is projected to continue to recover in 2009/10 to 94,000 hectares. New measures to support cotton production in the Gezira scheme (the largest cotton area in the country), including the availability of credit for fertilizer and pesticide and the promise to pay producers for seedcotton at the farm gate, were expected to encourage a rebound in cotton production. Cotton production in Sudan is forecast at 34,000 tons, up 15% the level reached in the previous season. After four consecutive seasons of decline, cotton production in the eleven producing countries of the CFA zone 2 is expected to continue to decrease slightly in 2009/10 to 519,000 tons. This is less than half the record of 1.1 million tons reached in 2004/05. Cotton area is projected down by 4% to 1.4 million hectares in 2009/10. The minimum seedcotton prices announced to producers at planting time in 2009/10 are similar to or slightly lower than in the previous season, depending on the country. The combination of lower seedcotton prices and other general problems, including inclement weather, higher fertilizer prices, delayed and/or diminished input applications, and financial difficulties encountered by cotton companies, explain the decline in production in the CFA zone in the last few seasons. Since early 2002, the strengthening of the CFA franc (pegged to the euro) against the U.S. dollar has offset most increases in international cotton prices, and exacerbated difficulties in years when prices declined. Also, problems related to the system of caution solidaire" 3 in the last few seasons have hindered farmers ability to receive new input credits, which affected both cotton area and yield. Weather conditions were more favorable to cotton production in 2008/09 than in the previous season PRODUCTION: AFRICA and cotton yields increased slightly. However, weather at the Million Tons beginning of the 2009/10 growing season was less favorable. Nevertheless, the yield is expected to continue to increase slightly in 2009/10, to 382 kg/ha. Production is expected to increase slightly in Benin to 93,000 tons (+4%), to remain stable in Burkina Faso at 181,000 tons and in Cameroon at 60,000 tons, but to decline in all other countries of the CFA zone. Burkina Faso is expected to plant 100,000 hectares of biotech cotton in 2009/10, up from more less than 10,000 hectares in the previous season. Cotton production in East and Southern Africa is expected 2) Benin, Burkina Faso, Cameroon, Central African Republic, Chad, Cote d Ivoire, Guinea-Bissau, Mali, Niger, Senegal, Togo. 3) The system of caution solidaire provides joint financial responsibility to members of each group of cotton producers, regarding in particular the repayment of input credits at the end of the season. If some farmers in a given group do not repay their input credits, other farmers in the same group have to repay these credits so that the entire group can receive new input credits the following season. In recent years, the system of caution solidaire in West Africa suffered from the decline in farmers revenues from cotton production.

7 to decrease slightly to 405,000 tons in 2009/10, due to a decline in area. Production in Tanzania is expected to decline to 71,000 tons in 2009/10, assuming a lower planted area 4. Seedcotton prices paid to farmers in 2008/09 are expected to be only slightly lower than last season thanks to a government grant. However, cotton yields decreased significantly in 2008/09 due to unfavorable weather in some areas. Production in Zimbabwe is expected to continue to increase to 111,000 tons, assuming an increase in planted area. Nigeria s production is expected to continue to decrease slightly to 58,000 tons. Production in Zambia is expected to remain stable at around 44,000 tons. Mozambique production is expected to decrease to 26,000 tons due to a projected decline in cotton area. European Union: Production Less than Half its Level of 2005/06 In the European Union (27 countries) (EU), cotton is produced principally in Greece and Spain. Production in Portugal stopped in 2006 and production in Bulgaria is now less than 500 tons. Cotton growers in Greece, Spain, Bulgaria and Portugal obtain assistance through the Common Agricultural Policy (CAP) of the EU. Starting in 2006/07, cotton producers received 65% of EU support as a single decoupled payment (income aid) and the remaining 35% as an area payment (production aid). PRODUCTION: EU-27 On September 7, 2006, the European Court of Justice annulled the EU cotton reform due to the fact that labor costs Thousand Tons were not well accounted for in production costs and also due to the lack of examination of the potential economic effects of the reform on the ginning sector. However, the initial decoupled program applied until 2008/09. A revised regime, introduced in 2008, will apply to the 2009/10 season. The base structure of the program remains the same, with a similar 65/35 division between decoupled and coupled payments. The payment coupled to cotton area is increased but the maximum cotton area eligible to receive this coupled payment is decreased in each country (except for Portugal). In addition, the new regime requires producers to harvest the cotton that has been planted in order to benefit from coupled support, and the quality of the cotton must be of sound and fair merchantable quality. This is to avoid abandonment of production, which was high in the past three seasons. The revised regime also provides support to national programs aimed at restructuring the ginning sectors. These changes in the EU support program are expected to encourage a rebound of cotton production in Spain, where it had fallen to its lowest level since the early 1950s. Spanish production is forecast up for the first time in five years, to 29,000 tons. However, Greek cotton production is forecast down by 23% to 185,000 tons (the lowest in over two decades), as more farmers turn to less costly grain production. As a result, EU cotton production is expected to decline in 2009/10 for the fourth consecutive season, to 214,000 tons (-17% from the previous season). Cotton stocks decreased significantly during 2008/09, to an estimated 155,000 tons. They are expected to decline further to 140,000 tons in 2009/10. Spanish cotton production has been much more affected by the decoupling of EU cotton support than Greek production, due to a collapse in Spanish cotton yields. Greece and Spain both had cotton yields above one ton per hectare before the implementation of the decoupled EU cotton regime. Between 2005/06 and 2008/09, the yield decreased by 19% to 960 kg/ha in Greece and by 72% to 354 kg/ha in Spain. Under the decoupled (but not revised) EU cotton regime, producers had an incentive to minimize the use of inputs to reduce production costs. In addition, in Spain the expansion in 2006 of the cotton area qualifying for agri-environmental payments under a less intensive production system likely contributed to the decrease in cotton yields. The new requirement of the revised decoupled program to harvest the cotton is expected to encourage a partial yield recovery in Spain. North America: Small Recovery in Production After three consecutive seasons of decline, North American production is expected to increase by 5% in 2009/10 to 3.1 million tons. This would remain the second smallest production in the two decades. North America will account for 13% 4) In Tanzania, cotton is planted between mid-november and mid-december, and harvested in May-June of the following year. The Secretariat considers that cotton planted between mid-november and mid-december 2008 belongs to the 2008/09 season.

8 of world production in 2009/10, up from 12% in 2008/09. Cotton stocks decreased significantly during 2008/09, to an estimated 1.5 million tons. A further reduction is expected during 2009/10, to 1.4 million tons. In 2008/09, unfavorable weather resulted in an aboveaverage abandonment rate (in particular in Texas) and a decline in yields. In addition, at planting time for the 2009/10 season, cotton prices remained unattractive relative to prices of grains and oilseeds. The 2008 U.S. farm bill gave farmers the possibility to enroll into an Average Crop Revenue Election (ACRE) program starting in 2009/10. The ACRE could have diverted agricultural area away from cotton. However, it did not affect cotton-planting decisions for 2009/10, as most farmers had not made their decision regarding ACRE enrollment in the spring of 2009. U.S. planted cotton area decreased by 4% to 3.7 million hectares in 2009/10. Weather conditions at the beginning of the season were overall more favorable than in 2008 but south Texas suffered from drought. Assuming an abandonment rate of 13% (compared to 20% last year), 2009/10 harvested area is expected to increase by 4% to 3.2 million hectares, still the second lowest since 1983/84. The average yield is expected to increase slightly to 930 kg/ha. As a result, U.S. cotton production is forecast up by 6% to 3.0 million tons in 2009/10. This would remain the second lowest U.S. production in two decades. In Mexico, a significant decline in the target price used in the government support price mechanism in 2009/10 reduced the incentive to grow cotton for many growers. Cotton area dropped by 35% to 66,000 hectares. Assuming an increase in the average yield, production is projected at 84,000 tons, down 33% from the previous season and the lowest in six years. Southern Hemisphere: Slight Increase in Production Cotton area in the southern hemisphere is generally more price-responsive than in the northern hemisphere, and plantings will respond to price signals during the second semester of 2009. Overall cotton area in the southern hemisphere is projected down slightly to 2.6 million hectares in 2009/10. Based on recent average yields for each country, southern hemisphere production is projected to increase by 4% to 2.1 million tons, driven by an expected rebound in Australia. The southern hemisphere will account for an estimated 9% of world production in 2009/10. Australia: Continued Recovery in Production Severe drought affected Australian cotton production in 2006/07 and 2007/08. Production reached 126,000 tons in 2007/08, the lowest in 25 years. However, it rebounded to 315,000 tons in 2008/09 thanks to a lessening of drought conditions. Recovery in production is expected to continue in 2009/10. Area is forecast at 220,000 hectares, up by 35% from 2008/09. Assuming an average yield of 1,942 kilograms per hectare, production is expected to increase to 427,000 tons in 2009/10. Australian cotton stocks increased by 50% during 2008/09 to an estimated 214,000 tons and should continue to expand during 2009/10 to 285,000 tons. Million Tons Thousand Tons PRODUCTION: USA PRODUCTION: SOUTHERN HEMISPHERE PRODUCTION: SOUTHERN HEMISPHERE Argentina Brazil Australia

9 South America: Production Down Again Production in South America reached a record of 1.9 million tons in 2007/08, driven by a record Brazilian crop, but it fell to 1.40 million tons in 2008/09. It is expected to continue to decrease in 2009/10, with less magnitude, to 1.36 million tons. South American cotton stocks declined by 26% to 980,000 tons during 2008/09; they are expected to decrease further during 2009/10, to less than 900,000 tons. Cotton production in Brazil fell from a record of 1.6 million tons in 2007/08 to 1.2 million tons in 2009/10, due to a decline in cotton area caused by high production costs, financing difficulties and competition from soybeans. The same factors are expected to cause further decline in cotton area in 2009/10, to 775,000 hectares. However, the area decline may be lessened by an expansion in narrow-row plantings, which shortens the crop cycle and could allow farmers to grow both cotton and soybeans in the same year. Cotton production is forecast down by 5% to 1.1 million tons in Brazil in 2009/10. Production in Argentina is expected to partially recover in 2009/10 to 140,000 tons. Cotton area is projected only slightly higher, as the area not planted to sunflower due to drought conditions might be diverted to soybeans rather than to cotton if price relationships remain attractive to the former crop. If drought conditions lessen, the average cotton yield could partially recover in 2009/10 after a drop last season. Production in the rest of South America is forecast slightly down to 89,000 tons in 2009/10. Cotton production in Colombia is expected to continue to decrease for the fifth consecutive season to 32,000 tons. Cotton area is forecast up in the Coastal region, but could continue to decline in the Interior region. Production in Paraguay is expected to increase to 18,000 tons. Production in Peru is forecast stable at 30,000 tons. WORLD COTTON SUPPLY FORECAST SLIGHTLY DOWN IN 2010/11 The speed at which the global economy will recover in the coming months and year will influence the recovery of world cotton mill use and international cotton prices. Cotton market fundamentals currently suggest little change in the season-average Cotlook A Index in 2009/10. However, cotton prices are expected to remain less attractive than prices of grains and oilseeds, when compared to the situation at the beginning of this decade. In addition, input costs are expected to remain higher than they were a few years ago. These factors will continue to put pressure on world cotton area. The Secretariat forecasts world cotton area to continue to decline by 3% to 29.6 million hectares in 2010/11. In China (Mainland) and Pakistan, cotton area is forecast stable. In India, cotton area is expected to decline by 5%, assuming that domestic prices will not be supported during 2009/10 as much as they were than during the preceding season, and that competition with food crops will increase. In the United States, cotton area is expected to decline slightly as competition with oilseeds and grains will continue to divert some agricultural area away from cotton production. In these four countries combined, cotton area is expected to decrease by 3% to 21.2 million hectares. In the rest of the world, area is expected to decrease, to 8.4 million hectares. This could be the six consecutive year of decline in cotton area in the rest of the world. The world cotton yield is expected to increase by 2% in 2010/11, to 785 kg/ha, supported by expanded use of existing agricultural techniques and technological progress. As a result, world cotton production is forecast at 23.2 million tons in 2010/11, down by 1% from 2009/10. During the last five seasons, ICAC August projections of world production during the next season were underestimated three times (2004/05 by 19%, 2005/06 by 14% and 2006/07 by 7%), overestimated once (2008/09 by 13%) and estimated correctly once (2007/08). The Secretariat forecasts 2010/11 beginning stocks stable at 12.7 million tons. As a result, 2010/11 world cotton supply (production + beginning stocks) is expected to reach 35.9 million tons, slightly less than in 2009/10. WORLD COTTON AREA AND YIELD Kg/Ha Yield Area Million ha

10 2008/09 SUPPLY AND USE OF COTTON BY COUNTRY August 10, 2009 AREA YIELD PROD BEG STKS IMPORTS CONS EXPORTS END STKS S/U * 000 Ha Kgs/Ha 000 Metric Tons Ratio CANADA 3 5 6 2 0.37 CUBA 4 269 1 5 9 10 5 0.50 DOM. REP. 2 2 0.31 MEXICO 101 1,235 125 220 285 400 35 195 0.45 USA 3,063 911 2,790 2,187 1 773 2,896 1,309 0.36 N. America 3,173 919 2,917 2,416 302 1,192 2,931 1,512 0.37 EL SALVADOR 5 26 26 5 0.20 GUATEMALA 6 21 21 6 0.27 HONDURAS 0 316 0 1 5 5 1 0.14 C. America 2 510 1 12 52 53 12 0.22 ARGENTINA 286 403 115 146 22 150 3 130 0.85 BOLIVIA 5 518 2 2 9 9 2 2 0.21 BRAZIL 842 1,416 1,193 1,041 8 937 600 705 0.46 CHILE 3 13 13 3 0.23 COLOMBIA 43 884 36 35 60 85 0 46 0.53 ECUADOR 1 425 1 9 13 14 9 0.62 PARAGUAY 50 340 17 10 5 14 8 0.41 PERU 41 729 30 68 71 100 5 64 0.61 URUGUAY 1 3 3 1 0.25 VENEZUELA 15 354 5 14 15 19 2 14 0.66 S. America 1,284 1,090 1,399 1,329 214 1,334 627 981 0.50 ALGERIA 5 15 15 5 0.36 EGYPT 133 813 108 84 95 150 43 94 0.49 MOROCCO 10 33 34 9 0.26 SUDAN 85 345 29 26 3 18 35 1.70 TUNISIA 3 7 8 3 0.33 N. Africa 218 630 137 128 150 209 61 146 0.54 BENIN 200 450 90 40 4 81 45 0.52 BURKINA FASO 466 390 182 66 4 161 84 0.51 CAMEROON 147 408 60 21 2 45 34 0.71 CENT. AFR. REP. 8 264 2 1 2 1 0.40 CHAD 164 177 29 25 2 25 28 1.04 COTE D'IVOIRE 141 378 53 17 5 45 20 0.39 GUINEA 13 250 3 1 3 1 0.42 MADAGASCAR 21 327 7 3 5 2 3 0.47 MALI 197 429 84 37 4 84 34 0.38 NIGER 5 431 2 0 1 0.12 SENEGAL 33 455 15 5 1 14 5 0.35 TOGO 55 239 13 7 13 7 0.51 F. Africa 1,450 373 541 223 27 477 260 0.52 ANGOLA 2 291 1 0 1 0 0.12 ETHIOPIA 85 260 22 6 8 14 6 0.29 GHANA 25 408 10 3 3 7 3 0.25 KENYA 46 172 8 9 13 21 1 9 0.42 MALAWI 56 335 19 16 2 22 11 0.44 MOZAMBIQUE 168 170 29 16 1 25 18 0.68 NIGERIA 261 230 60 24 13 40 27 30 0.45 SOUTH AFRICA 8 947 8 14 34 41 5 10 0.22 TANZANIA 395 210 83 102 35 57 93 1.01 UGANDA 125 185 23 6 4 13 13 0.75 CONGO, DR 11 271 3 2 5 8 2 0.27 ZAMBIA 231 190 44 17 44 17 0.40 ZIMBABWE 375 267 100 65 12 81 72 0.78 S. Africa 1,808 229 413 285 84 198 296 288 0.58 KAZAKHSTAN 160 562 90 20 5 12 85 18 0.19 KYRGYZSTAN 33 786 26 12 3 2 27 12 0.41 TAJIKISTAN 223 489 109 37 12 70 64 0.78 TURKMENISTAN 674 441 297 72 90 90 189 1.05 UZBEKISTAN 1,391 719 1,000 384 1 240 560 585 0.73 C. Asia 2,481 613 1,522 526 9 356 832 869 0.73

11 2008/09 SUPPLY & USE OF COTTON BY COUNTRY (cont'd) August 10, 2009 AREA YIELD PROD BEG STKS IMPORTS CONS EXPORTS END STKS S/U * 000 Ha Kgs/Ha 000 Metric Tons Ratio AUSTRIA 1 10 10 1 0.13 AZERBAIJAN 51 392 20 20 15 7 18 0.80 BELARUS 4 11 11 4 0.34 BELGIUM 5 11 12 2 3 0.19 BULGARIA 1 321 0 7 14 13 1 7 0.47 CZECH REP. 12 17 20 1 8 0.39 DENMARK ESTONIA 7 15 15 0 7 0.48 FINLAND FRANCE 5 16 16 3 3 0.15 GERMANY 14 44 42 8 9 0.18 GREECE 250 960 240 85 4 43 220 66 0.25 HUNGARY 1 4 4 1 0.39 IRELAND 0 1 1 0 0.30 ITALY 38 48 65 4 17 0.24 LATVIA 8 16 4 12 8 0.49 LITHUANIA 2 4 4 2 0.35 MOLDOVA 1 3 3 1 0.36 NETHERLANDS 1 3 3 1 0.38 NORWAY 1 1 0 0.26 POLAND 3 12 12 3 0.21 PORTUGAL 15 35 38 12 0.31 ROMANIA 2 3 4 2 0.53 RUSSIA 49 200 200 50 0.25 SLOVAK REP. 0 2 2 0 0.29 SPAIN 48 354 17 13 4 11 17 6 0.22 SWEDEN 0.22 SWITZERLAND 0 5 5 0 0.11 UKRAINE 4 16 11 5 4 0.29 UNITED KINGDOM 0.23 FORMER YUGOSLAVIA 5 11 11 4 0.40 Europe 354 787 279 307 510 574 283 238 0.13 Including EU-27 299 861 257 222 262 314 271 155 0.27 CHINA (MAINLAND) 6,317 1,270 8,025 3,321 1,520 9,000 22 3,844 0.43 CHINA (TAIWAN) 68 160 175 53 0.31 CHINA (HONG KONG) 27 70 25 50 22 0.29 Sub total 6,317 1,270 8,025 3,416 1,750 9,200 72 3,919 0.42 AUSTRALIA 163 1,932 315 138 0 10 230 214 0.89 INDONESIA 9 700 6 102 430 435 4 99 0.23 JAPAN 35 100 110 25 0.23 KOREA, D.R. 19 540 10 6 5 15 6 0.41 KOREA, REP. 43 210 210 43 0.20 MALAYSIA 8 40 41 8 0.20 PHILIPPINES 10 414 4 3 13 17 3 0.18 SINGAPORE 1 3 3 1 0.24 THAILAND 5 506 2 104 360 375 4 87 0.23 VIETNAM 5 492 3 62 250 250 64 0.26 E. Asia 220 1,583 347 504 1,412 1,470 242 552 0.32 AFGHANISTAN 83 410 34 40 4 30 40 1.17 BANGLADESH 33 293 10 154 625 630 158 0.25 INDIA 9,373 526 4,930 1,560 130 3,767 425 2,428 0.58 MYANMAR 310 208 64 34 47 17 34 0.53 PAKISTAN 2,850 688 1,960 845 460 2,452 90 723 0.28 SRI LANKA 5 17 17 5 0.28 S. Asia 12,652 553 7,000 2,638 1,231 6,920 562 3,388 0.45 IRAN 120 583 70 39 50 125 34 0.27 IRAQ 20 353 7 1 6 13 1 0.09 ISRAEL 5 1,667 9 5 9 5 0.56 SYRIA 190 1,274 242 92 185 45 104 0.45 TURKEY 365 1,233 450 404 570 1,085 15 324 0.29 Sub total 735 1,081 794 550 654 1,447 74 477 0.37 WORLD TOTAL 30,694 762 23,376 12,333 6,369 22,979 6,456 12,643 0.55 */ Ending stocks divided by consumption plus exports. Subtotals and total include countries not shown.

12 2009/10 SUPPLY AND USE OF COTTON BY COUNTRY August 10, 2009 AREA YIELD PROD BEG STKS IMPORTS CONS EXPORTS END STKS S/U * 000 Ha Kgs/Ha 000 Metric Tons Ratio CANADA 2 5 5 2 0.38 CUBA 4 269 1 5 9 10 5 0.50 DOM. REP. 2 2 0.31 MEXICO 66 1,271 84 195 300 380 15 184 0.47 USA 3,192 930 2,969 1,309 1 762 2,306 1,211 0.39 N. America 3,267 935 3,055 1,512 318 1,161 2,321 1,403 0.40 EL SALVADOR 5 26 26 5 0.20 GUATEMALA 6 21 21 6 0.27 HONDURAS 0 316 0 1 5 5 1 0.14 C. America 2 510 1 12 52 53 12 0.22 ARGENTINA 300 465 140 130 15 145 16 123 0.77 BOLIVIA 5 523 3 2 9 9 3 2 0.21 BRAZIL 775 1,460 1,131 705 7 937 289 618 0.50 CHILE 3 13 13 3 0.23 COLOMBIA 41 891 32 46 55 85 0 48 0.56 ECUADOR 1 429 1 9 13 14 9 0.62 PARAGUAY 54 340 18 8 5 10 11 0.71 PERU 41 736 30 64 73 98 5 64 0.62 URUGUAY 1 3 3 1 0.25 VENEZUELA 15 357 6 14 15 19 2 14 0.66 S. America 1,232 1,104 1,360 981 204 1,327 325 893 0.54 ALGERIA 5 15 15 5 0.36 EGYPT 121 851 103 94 90 153 55 79 0.38 MOROCCO 9 34 34 9 0.26 SUDAN 94 360 34 35 3 31 35 1.03 TUNISIA 3 8 8 3 0.33 N. Africa 215 637 137 146 147 212 86 131 0.44 BENIN 200 466 93 45 4 84 50 0.57 BURKINA FASO 443 408 181 84 4 168 92 0.53 CAMEROON 150 400 60 34 2 52 39 0.71 CENT. AFR. REP. 8 267 2 1 2 1 0.40 CHAD 131 177 23 28 2 20 30 1.40 COTE D'IVOIRE 130 375 49 20 5 43 21 0.44 GUINEA 13 262 4 1 3 1 0.41 MADAGASCAR 21 330 7 3 5 2 3 0.47 MALI 200 400 80 34 4 76 34 0.42 NIGER 5 435 2 0 1 0.12 SENEGAL 31 459 14 5 1 14 5 0.34 TOGO 57 241 14 7 14 7 0.52 F. Africa 1,389 380 529 260 27 479 283 0.56 ANGOLA 2 293 1 0 1 0 0.12 ETHIOPIA 85 263 22 6 8 15 6 0.28 GHANA 20 412 8 3 3 5 3 0.31 KENYA 46 181 8 9 12 21 9 0.43 MALAWI 56 338 19 11 2 17 11 0.58 MOZAMBIQUE 151 172 26 18 1 26 17 0.65 NIGERIA 248 232 58 30 12 39 37 24 0.32 SOUTH AFRICA 8 951 8 10 38 40 5 10 0.22 TANZANIA 316 225 71 93 35 41 88 1.17 UGANDA 125 185 23 13 4 19 13 0.55 CONGO, DR 11 273 3 2 5 8 2 0.27 ZAMBIA 231 192 44 17 44 18 0.41 ZIMBABWE 413 269 111 72 12 96 75 0.70 S. Africa 1,731 235 406 288 85 195 305 280 0.56 KAZAKHSTAN 139 515 72 18 5 12 64 18 0.24 KYRGYZSTAN 17 819 14 12 3 2 18 8 0.42 TAJIKISTAN 171 489 83 64 12 76 60 0.68 TURKMENISTAN 607 415 252 189 90 151 200 0.83 UZBEKISTAN 1,317 780 1,027 585 1 240 756 618 0.62 C. Asia 2,250 643 1,448 869 9 356 1,065 905 0.64

13 2009/10 SUPPLY & USE OF COTTON BY COUNTRY (cont'd) August 10, 2009 AREA YIELD PROD BEG STKS IMPORTS CONS EXPORTS END STKS S/U * 000 Ha Kgs/Ha 000 Metric Tons Ratio AUSTRIA 1 9 9 1 0.14 AZERBAIJAN 30 479 14 18 15 5 12 0.57 BELARUS 4 11 11 4 0.34 BELGIUM 3 13 11 2 3 0.20 BULGARIA 1 321 0 7 13 13 1 6 0.47 CZECH REP. 8 7 10 1 4 0.37 DENMARK ESTONIA 7 15 15 0 7 0.48 FINLAND FRANCE 3 18 15 3 3 0.14 GERMANY 9 47 40 7 9 0.19 GREECE 190 975 185 66 3 39 161 55 0.28 HUNGARY 1 3 3 1 0.43 IRELAND 0 1 1 0 0.32 ITALY 17 67 62 4 17 0.25 LATVIA 8 16 4 12 8 0.49 LITHUANIA 2 4 4 2 0.35 MOLDOVA 1 3 3 1 0.36 NETHERLANDS 1 3 3 1 0.38 NORWAY 1 1 0 0.27 POLAND 3 11 11 3 0.22 PORTUGAL 12 36 36 12 0.32 ROMANIA 2 3 4 1 0.35 RUSSIA 50 190 190 51 0.27 SLOVAK REP. 0 2 2 0 0.30 SPAIN 58 500 29 6 4 11 18 10 0.37 SWEDEN 0.23 SWITZERLAND 0 4 4 0 0.11 UKRAINE 4 16 11 5 4 0.29 UNITED KINGDOM 0.21 FORMER YUGOSLAVIA 4 11 11 4 0.41 Europe 283 814 230 238 514 539 223 221 0.14 Including EU-27 249 862 214 155 276 291 212 143 0.29 CHINA (MAINLAND) 5,748 1,300 7,473 3,844 1,660 9,270 20 3,687 0.40 CHINA (TAIWAN) 53 166 166 53 0.32 CHINA (HONG KONG) 22 67 24 45 20 0.29 Sub total 5,748 1,300 7,473 3,919 1,893 9,460 65 3,760 0.39 AUSTRALIA 220 1,942 427 214 0 9 348 284 0.80 INDONESIA 9 703 6 99 458 448 4 111 0.25 JAPAN 25 100 101 24 0.24 KOREA, D.R. 19 542 10 6 5 15 6 0.41 KOREA, REP. 43 202 200 45 0.22 MALAYSIA 8 41 41 8 0.19 PHILIPPINES 10 416 4 3 13 17 3 0.18 SINGAPORE 1 3 3 1 0.24 THAILAND 5 508 2 87 384 383 4 87 0.23 VIETNAM 6 485 3 64 273 268 73 0.27 E. Asia 277 1,660 460 552 1,480 1,488 360 644 0.35 AFGHANISTAN 83 410 34 40 4 30 40 1.17 BANGLADESH 34 294 10 158 673 662 180 0.27 INDIA 9,800 560 5,488 2,428 110 3,974 1,402 2,650 0.49 MYANMAR 310 209 65 34 47 17 34 0.52 PAKISTAN 3,100 670 2,077 723 546 2,551 45 750 0.29 SRI LANKA 5 17 17 5 0.28 S. Asia 13,330 576 7,676 3,388 1,346 7,257 1,494 3,659 0.42 IRAN 108 579 63 34 62 125 34 0.27 IRAQ 20 355 7 1 6 13 1 0.09 ISRAEL 6 1,745 10 5 10 5 0.52 SYRIA 181 1,274 230 104 185 49 100 0.43 TURKEY 329 1,245 409 324 658 1,052 15 324 0.30 Sub total 677 1,085 734 477 755 1,415 79 472 0.35 WORLD TOTAL 30,402 773 23,509 12,643 6,802 23,489 6,802 12,664 0.54 */ Ending stocks divided by consumption plus exports. Subtotals and total include countries not shown.

14 WORLD COTTON SUPPLY WORLD ENDING STOCKS Supply Production World cotton mill use is expected to continue recovering in 2010/11 as global economic growth accelerates, but competition with polyester will remain a challenge. The Secretariat currently projects world cotton mill use up by 1.4% in 2010/11, to 23.8 million tons. Cotton mill use is expected to continue recovering in South Asia, but to continue declining in most of Europe and North America. During the last five seasons, ICAC August projections of world mill use during the next season were underestimated three times (2004/05 by 8%, 2005/06 by 12% and 2006/07 by 7%), overestimated once (2008/09 by 18%) and estimated correctly once (2007/08). World cotton imports are expected to continue to increase by 3% to 7.0 million tons in 2010/11, driven by a significant increase in Chinese imports to 2.0 million tons. However, imports by the rest of the world are projected slightly down to 5.0 million tons. U.S. and Indian shipments are expected to remain stable at 2.3 million tons and 1.4 million tons, respectively, but Australian exports will increase. World ending stocks are projected to decline by 5% to 12.1 million tons by July 31, 2011. The world stocks-to-use ratio is forecast down for the third consecutive season, to 51%. Ending stocks outside China (Mainland) are forecast down by 7% to 8.4 million tons, while stocks in China (Mainland) are forecast stable at 3.7 million tons. The stocksto-mill use ratio outside China (Mainland) is projected at 58%, down five percentage points from the ratio anticipated for 2009/10.