A month ago, we reported some Chinese textile mill officials said they thought Beijing would change to a new cotton farmer support policy in 2013/14, where they would pay their farmers a direct subsidy (similar to the U.S. target price and deficiency payment system) instead of artificially keeping domestic cotton prices high by putting domestic production into state-owned Reserves. That policy has led to China sitting on nearly a 20-month supply relative to its annual usage and representing more than 62% of projected global ending stocks
A cotton conference was held July 15 in New York regarding China and the profound “wildcard” its cotton policy poses for the global cotton outlook. It was hoped that Chinese officials attending and presenting would shed light on future plans.
Sharon Knight, a respected analyst with KCG Futures, attended. But as usual, she says the Chinese were cryptic and vague, one saying only that he thought it would be “three or more years to bring better balance of inventory and consumption in China” and that it would “depend heavily on world economic conditions not slowing further.” ThatΆs far less ominous for prices than a radical shift.
Excellent and v-e-r-y welcome rains in Texas and SW OK the past week have likely improved conditions markedly. WeΆll find out Monday in the weekly crop condition report from USDAΆs NASS.
In ThursdayΆs weekly export sales report, we noticed export sales YTD have fallen behind where they need to be to sustain USDAΆs current forecast for the 2012/13 marketing year that ends this month. Aug. 1. Sagging Chinese imports in June are a significant factor, adding to warnings that country may alter its domestic price support program to direct farmer subsidies instead of socking domestic cotton into reserve.
However, as you read in the lead items to this weekΆs closing comments, a big New York conference this week shed little new light on ChinaΆs plans, but indicated NOTHING about a radical change that would be quite bearish for global cotton prices if a big chunk of those Chinese reserves were to be suddenly offered to the global marketplace.
