Brief details aired on ChinaΆs new target-price program. Benefits or subsidies received by cotton growers in China as a result of government interventions are estimated by the ICAC at $4.8 billion in 2013-14.
Cotton futures settled with modest losses beyond thinly traded October Tuesday as benchmark December closed below lows of the previous three sessions.
December finished off 29 points at 65.55 cents in the lower third of its 91-point range from up 33 points at 66.17 cents to down 58 points at 65.26 cents. It held at the low a tick above the midpoint of the rally from the Aug. 1 contract low to FridayΆs high.
October closed up 10 points to 68.28 cents and March settled down 38 points to 65.39 cents.
Volume slowed to an estimated 17,400 lots from 26,081 lots on Monday when spreads accounted for 7,256 lots or 28%, EFP 36 lots and EFS 13 lots. Options volume totaled 1,159 calls and 2,717 puts.
Brief details reported this week by Cotlook on ChinaΆs new target-price program indicated the subsidy payment to producers in the main Xinjiang cotton-producing region will be delivered in two steps.
The total amount to be paid by the central government will determined by the volume of output and the difference between the target price (19,800 yuan per metric ton or about 146 cents per pound at current mid-market exchange rates) and the assessed market price.
The subsidy will be allocated to cotton producers through a payment scheme implemented by XinjiangΆs autonomous government.
ItΆs understood that the market price will be an average rate based on information collected from September through November. Growers will get the same subsidy amount calculated from the same average market price.
Thus, as Cotlook is said to have noted, the higher the price a grower can obtain, the higher will be that individualΆs total remuneration.
In a report on worldwide production and trade policies affecting the cotton industry, the International Cotton Advisory Committee estimates that all types of cotton subsidies provided by the Chinese government totaled $5.1 billion in 2013-14, against $5.8 billion the prior year.
The secretariat uses the difference between domestic and imported cotton prices as an estimate of the support to Chinese cotton prices resulting from government interventions.
The price differential between the China Cotton Index of mill-delivered cotton and an index of imported cotton arriving in Chinese main ports, adjusted to include the value added tax, port charges and transportation to mills, is used in the calculations.
Benefits or subsidies received by growers in China as a result of government interventions are estimated at $4.8 billion in 2013-14 or 32 cents per pound, compared with $5.5 billion or 34 cents in 2012-13.
In addition, the government pays growers a subsidy amounting to about $150 million a year for using high quality planting seeds, although small farmers donΆt significantly benefit from it.
During the past several seasons, China also provided subsidies for transportation of cotton from Xinjiang to mills in eastern and southern China estimated at about $160 million per year.
Futures open interest fell 2,955 lots Monday to 182,562, with DecemberΆs down 2,251 lots to 110,003 and MarchΆs down 808 lots to 55,537. Cert stocks declined 2,020 bales to 48,649, lowest since Jan. 15.
World prices as measured by the Cotlook A Index fell 185 points Tuesday morning to 74.30 cents, widening the premium to MondayΆs December futures settlement by 31 points to 8.46 cents.
