Specifically, the governmentΆs recent cut to the MY16/17 target price for Xinjiang cotton farmers by RMB500/ton ($78/ton) is expected to reduce cotton returns and negatively impact cotton planting intentions in this province. Similarly, in the Yangtze and Yellow River regions, the anticipated low government production support (not yet confirmed as of this report) and more profitable alternative crops will reduce MY16/17 cotton acreage in these regions. (See more in the Policy Section of this report).

Slower economic growth, strong imports of yarn, and greater use of increasingly more competitive fibers, in particular polyester, continues to impact the recovery of Chinese cotton consumption, estimated at 7.2 MMT in MY15/16 and forecast to grow slightly to 7.3 MMT in MY16/17.

ChinaΆs large state cotton reserves –built during the government cotton state purchases during MY11/12- MY13/14– remain a challenge due to the low use of domestic cotton. As a result, at the beginning of MY15/16, ChinaΆs cotton stocks are estimated at a record 14.8 MMT, roughly about 61 percent of global stocks.

High carry-in stocks, slowdown in consumption growth, and the governmentΆs ability to control domestic supplies –through state reserve sales and by limiting additional tariff rate quotas (TRQ)—will continue to reduce cotton imports to an estimated 1.1 MMT in MY15/16. Given the expected drop in ChinaΆs total cotton imports and increased competition from other cotton suppliers such as India and Australia, ChinaΆs imports of U.S. cotton are expected to fall further in MY15/16.

However, in order to stay competitive in export markets, the Chinese textile industry is likely to continue sourcing higher grade cotton from abroad. This supports a slight recovery in total cotton imports for MY16/17 forecast at 1.2 MMT. Correspondingly, imports of U.S. cotton could recover slightly in MY16/17 but still at a lower level than the 587,000 tons in MY14/15.  Click here to read complete Gain Report: China Cotton and Products Annual