China is growing less cotton — millions of bales less — and that spells opportunity for the U.S., despite China having 50 million to 60 million bales of its own cotton sitting in reserves.

“Three years ago, China produced 35 million bales; two years ago, 32 million bales; last year, about 31 million bales,” says O. A. Cleveland, Jr., Extension economics professor emeritus at Mississippi State University and a veteran cotton analyst.

“ As we move into 2015, unless something happens weΆre going to see their production drop another 5 million bales, and by 2016-17 another five million bales — down to 20 million bales,” he said at the joint annual meeting of the Mississippi Boll Weevil Management Corporation and the Mississippi Farm Bureau Federation Cotton Policy Committee.

“Within just a five-year period, they will have gone from 35 million bales of production all the way down to 20 million bales,” he says.

ChinaΆs textile industry “will remain very strong — perhaps not the size it is now, but still exceptionally strong. Much of the investment theyΆve been putting into bricks-and-mortar and machinery is starting to go to Vietnam, Cambodia, Laos, and Myanmar.

Vietnam is booming, busting at the seams,” Cleveland says. “I was there several months ago, and itΆs just exploding.”

The Chinese government, he says, is insisting that the country is moving to a free market economy for both cotton and soybeans, and that theyΆre willing to let prices fall as the market dictates.

More food production

“TheyΆre moving much more toward a food-producing agriculture rather than a fiber-producing agriculture. They will continue to support cotton prices in Xinjiang Province, the big upper northwest desert area that theyΆre clearing, where they have huge water reservoirs.

“But the east coast of China will see more feed grains — corn and oilseeds — and some rice. Their hog industry is six times larger than ours, and itΆs going to be 10 times larger. ItΆs incredible! They made the switch to pork to give their people more meat instead of chicken, and theyΆre growing more feed grains for all those hogs.

“Everything the Chinese government has told us to date about their cropping and food intentions, and their move to a free market for cotton and beans, they have done — and this means the cotton price in China is going to fall.

“Chinese textile mills that have been paying as much as $1.75 per pound for cotton are now paying only $1.35,” Cleveland notes. “Where they were reimbursing growers with a target price of $1.40, now itΆs going to drop to $1.20-$1.15 in the Xinjiang Province.

“TheyΆve identified that area as where theyΆre going to produce their cotton. It can be grown more efficiently there than in the eastern seaboard areas. If they do what they say theyΆre going to do, they wonΆt support the price of cotton in the eastern seaboard areas, and that will drive cotton out of that area.

“So, the handwriting is pretty much on wall that China will be producing less cotton.”

Stocks are lower quality

In the short term, Cleveland says, China has 50 million to 60 million bales of cotton stocks that are overhanging the world market.

But, he says, “Those stocks are at least two years old, and most of the cotton is three or four years old, so other than using it to make cheap yarns, they have no choice except to import higher quality cotton to mix with their cotton in order to spin quality yarns.

“China has increasingly moved toward producing quality yarns, and their textile mills are wanting quality cotton. ThatΆs why weΆve been selling so much U.S. cotton.”

Cleveland says the USDAΆs World Agricultural Outlook Board has “grossly underestimated Chinese cotton demand the last five years — thatΆs documented — and in my opinion, theyΆve grossly underestimated it again. Three years ago, China imported 20 million bales, two years ago they imported 14 million bales, last year they imported 12 million bales. But the WAOB has China importing only 8.5 million bales of 2014 crop cotton, which I believe is too low.”

Chinese mills donΆt want the cotton its government has in storage, he says. “Yes, theyΆre buying some of it, but they will have to continue buying U.S. cotton to maintain quality. Our exports to China are still very active.

“I would guess as the U.S. crop gets bigger, at least three of every four bales we grow will go to the export market, and rather than USDAΆs export projection of 8.5 million bales, weΆll probably hit 12.5 million to 13 million bales, simply because weΆre going to have a larger crop and a lower price.”

India has been on track to become the worldΆs largest cotton producer, Cleveland says, “but it looks like China may stay above them this year. ThereΆs no doubt, though, that India will become the worldΆs largest producer — if not this year, perhaps next year.”

Concerns about IndiaΆs current crop, centered on fears their monsoon was going to be very late, is “another reason the market had gone higher, he says. “Instead, it came early, and everyone was excited that India was going to plant a lot of acres.

“Then, the monsoon disappeared. Sixty percent of the cotton acres in India arenΆt getting the rains needed to make the crop. TheyΆve quit planting and are just sitting there watching the skies. Only about 40 percent of the crop is getting decent rains.

“India still has time to produce 28 million to 32 million 480 lb. bales,” Cleveland says. “The USDA projects them at 38.5 million. The market is kinda teetering right now with respect to IndiaΆs production outlook, but whatever cotton we may be losing in India weΆre making up here in the U.S.

“But the New York cotton futures contract is U.S. based, so right now weΆre paying more attention to the U.S. crop.”