$1.30-pound reserve cotton
In 2015, China offered the reserve stocks for the equivalent of $1.30 per pound or nearly 50 cents per pound above the world market average at the time. As a result, a scant amount of cotton was sold, and cotton buyers got to see little of the fiber being held in the reserve.
“Some concluded this was evidence of the poor quality of the reserves,” says John Robinson, Extension marketing specialist at Texas A&M University. “But it was only clear evidence that the reserve offerings, whatever their quality, were not a value at that price.”
Dr. Robinson and other experts say the offerings could be at a more relevant base price such as 85 cents per pound, adjusted for quality, but add that remains to be seen. They do agree the timing of this yearΆs sales – before new crop enters the market – could be less disruptive than last yearΆs early summer auction.
ChinaΆs internal cotton price has been dropping due to the lower price of manmade fibers and the price of imported cotton, says Dr. Campiche.
“Back in February, ChinaΆs price was actually up closer to 90 cents per pound,” she said. Since then, itΆs dropped so ChinaΆs price is now down to 81 cents per pound. Polyester prices right now are at about 46 cents per pound.
Significant gap between cotton, polyester
“While back in February cotton was about twice that of polyester, now the gap has narrowed a little bit, but it is still a pretty significant gap, and that gap is not allowing cotton mill use in China to recover.”
China is also lowering its cotton subsidies. In 2015, China continued its target price of about $1.40 per pound for Xinjiang Province in western China with a lower set price for the other principal cotton-growing regions.
“For 2016 theyΆve announced that itΆs actually going to be lower – theyΆve lowered it to $1.32 per pound for Xinjiang Province,” said Dr. Campiche. “So theyΆre slowly reducing some of their supports.”
U.S. Trade Representative Michael Froman announced recently the U.S. and the PeopleΆs Republic of China had signed an agreement in which China will eliminate export subsidies the U.S. challenged in a Feb. 11, 2015 complaint to the World Trade Organization.
How the agreement will impact subsidies paid to producers of cotton and grain in China isnΆt clear, but Froman has said the Obama administration will continue to seek other areas in which China is violating trade agreements.
Minimum tariff rate quota
Dr. Campiche said China announced in 2015 it was limiting imports to the minimum tariff rate quota of 4.1 million, a significant decline from previous years when the country imported more than 10 million bales a year.
“At this point we think that will continue at that level,” she said. “But they havenΆt announced anything right now.”
ChinaΆs cotton production has been declining due to the lower support price and preferential treatment for grain crops in some of the countryΆs older cotton-producing regions. In 2015, India surpassed China as the worldΆs largest producer. ChinaΆs overall acreage declined 23 percent and production was at the lowest level since 2000.
“Going into 2016, another decline of 9 to 11 percent is being reported,” Dr. Campiche said. “Overall, ChinaΆs cotton production is estimated at 21.8 million bales for 2016 or down 2 million bales from 2015 and 11 million bales from 2013-14.”
ChinaΆs mill use has also been trending downward so that its textile industry consumed 32.5 million bales in 2015. ThatΆs down from 34.5 million in 2013-14.
“While China has made some major adjustments in cotton production and raw fiber imports, theyΆre still a very important player in the world cotton market,” says Campiche. “They actually increased their yarn imports by about 19 percent in the last year so theyΆre bringing in more yarn.”
Overall, that has allowed a slight reduction in ChinaΆs ending stocks from 64 million to 58.1 million bales in the last year. “This is still a large amount of stocks, and it continues to be a burden on the market,” she noted.
For more on the U.S. cotton industry, visit www.cotton.org.
