China's 2007 cotton harvest got underway, with a significant amount of "euphoria" evident throughout the country that output could soar to 8.0 million tons. Much of the logic behind such an optimistic forecast can be found in the lack of exact statistics from which to work. The industry has concluded that 2006/07 output was much higher than officially reported by the National Bureaus of Statistics (NBS). The NBS forecast 2006/07 output at 6.73 million tons, but it had been forecast by most private work at 7.5 million tons, which is in large part based on increased Xinjiang production. From this base, the enthusiasm evolved that eventually led to some market participants expecting a cotton crop of up to 8.0 million tons. Such expectations created an overwhelming bearishness toward domestic cotton prices and to a lesser degree, international prices.

The harvest is now over 30 days advanced and realism is beginning to set in. The first reality is linked to Xinjiang Province, which plays a crucial role in determining final output. A new field survey done in late August and early September by Xinjiang's Academy of Agriculture Science has cast doubt on the 2007 cotton yield in the province. The survey found that cotton yields will likely decline from the record levels in 2006, with boll development in August and September having been below average and boll weight down from the previous year. Cotton yields on the larger farms have been hit the hardest and are forecast to possibly fall 30 percent below year-ago levels. The lowest cotton yields are expected to occur in the northern cotton belt, with overall province-wide yields forecast to drop 5 to 8 percent below 2006 levels.

The academy survey found several factors behind the reduction in cotton yields. First, it appears that the reduced irrigation supplies had a larger impact than earlier expected. In those fields using drip irrigation, an average of only 8 to 10 applications occurred this season, which is below the normal average of 10 to 12. The yield reduction on the larger farms was linked to their receipt of only 50 percent of the water they needed. Power shortages also contributed to problems for the users of drip irrigation. This year's lower water supplies were exacerbated by this year's expansion in cotton acreage.

Another problem that emerged in the survey was that the southern cotton belt experienced excessive winds throughout the season. In the Bazhou area, cotton fields lost leaves, buds and bolls from the high winds that have reduced yields. In the northern cotton belt, prolonged periods of low temperatures early in the season appeared to have triggered a wilt problem that impacted yields. Finally, the survey revealed that there were issues with boll weevils and spider mites in some cotton fields. Thus, it appears that doubt has been shed on Xinjiang's ability to push output through the 3.0 million-ton level that we once thought possible. The Xinjiang Agriculture Department has indicated that 2007 cotton acreage increased 122,000 hectares.

As harvest has advanced in the East, some of the early optimism regarding yields has faded. In Shandong Province, yield estimates in the Wucheng area, which is now 80 percent harvested, have been scaled back, with seed cotton output not to exceed 3,750 kilograms per hectare. Excessive rain has impacted both yield and quality in the Dezhou area of the province. In Henan, the cotton harvest was also delayed, with growers having lowered yield estimates in some areas. In Hebei, excessive rain has caused anxiety over yields and quality in the Baoding district. In the south, Jiangsu Province, the largest cotton-producer in the region, both output and quality have been reduced due to excessive rain that has fallen over the past 60 to 90 days. The latest damage to the crop occurred as Typhoon Wipha moved through the provinces. In the Dafeng area, yield loss has now been estimated at 30 to 40 percent from earlier expectations, while a loss of over 30 percent has been predicted in the Lianyungang area, with flooding an issue.

Other problems have been reported in the southern provinces. It's too early to forecast a significant decline from last year's cotton crop, but what is clear is that the existing "euphoria" has faded and 2007/08 output will likely not exceed 7.5 million tons or could be lower.