Government Policies Affect Global Cotton Trade and Prices in 2011/12

This season, global cotton trade and prices are affected to a large extent by government policies in China and to a lesser extent by policies in India.

On the one hand, China accumulated over 3 million tons of domestic cotton and at least one million tons of foreign cotton in its national reserve during the first eight months of 2011/12. This accumulation boosted imports by China, which are now forecast at 4.2 million tons or up by 61% from 2010/11. While the purchases supported both domestic and international prices so far, sales from the reserve could reduce Chinese imports and depress world cotton prices in the future.

On the other hand, the Indian government imposed a sudden ban on new exports starting on March 5, 2012. The impact of India’s export ban on international cotton prices was limited in March, with the Cotlook A Index remaining around $1.00 per pound. However, the longer the ban remains in place, the greater its upward impact on world cotton prices could be.

Global cotton trade is expected to rise by 9% to 8.4 million tons in 2011/12, driven by near record imports from China. With global production exceeding global consumption in 2011/12, global stocks are expected to rebound by 41% to 13.1 million tons in 2011/12. However, two thirds of the increase in global stocks is taking place in China, as a result of their stockpiling policy. If we subtract the expected amount in the China national reserve from global stocks, the remaining “free” stocks may increase by only 5% to 9.4 million tons this season. The size of the Chinese national reserve creates significant uncertainty for the global cotton market for months and

maybe years to come.

                                WORLD COTTON SUPPLY AND DISTRIBUTION

                       2010/11 2011/12 2012/13    2010/11 2011/12 2012/13

                            Million Tons             Changes from January

                                                         Million Tons

Production              25.101  26.964  25.47       -0.006 -0.219  -0.265

Consumption             24.495  23.138  23.96       -0.012 -0.285  -0.319

Exports                  7.647   8.364   8.34        0.022  0.577   0.032

Ending Stocks            9.302  13.128  14.63       -0.028  0.038   0.092

Cotlook A Index*         1.64    1.06**