Since the beginning of April when the Chinese government announced a lower starting auction price, the pace of sales from China’s reserve increased and the Type 328 China Cotton Index (a daily index of prices for domestic cotton offered to mills in China) fell from this seasonΆs nine-month average of 144 cents/lb. to about 129 cents/ lb. by the end of April.

 

Although lower cotton prices are welcomed by the mills in China, a lot of damage has been done to the industry in the past few years by the Chinese governmentΆs cotton policy. Since the start of its reserve policy in 2011, mill consumption has declined by 17%, from 9.6 million tons in 2010/11 to 7.9 million tons in 2013/14. In 2014/15, the decline in consumption in China is expected to slow, falling by just 1% to 7.8 million tons. However, the next three largest consumers, India, Pakistan, and Turkey are all expected to see growth in their mill use in 2014/15. World consumption in 2014/15 is expected to reach 24.3 million tons, an increase of 3% in comparison with the previous year.

 

While world mill use is expected to increase in 2014/15, world production is forecast to decline by 2% to 25.2 million tons, narrowing the gap between world production and consumption. In 2014/15, India is expected to produce nearly 6.3 million tons, which is a decline of 2% due to the expectation that the monsoon weather will not be as favorable as in 2013/14. Most of the decline in world production will occur in China, where production is expected to decline by 10% from 6.7 million tons in 2013/14 to 6 million tons in 2014/15. As the Chinese government has restricted its support for cotton to just the Xinjiang region, area outside is expected to fall significantly.

 

World trade is expected to decline in 2014/15 to 8.2 million tons from 8.7 million tons forecast for 2013/14. As with production, this decline stems mostly from China, where imports in 2014/15 are expected to be 2.2 million tons, down by 30% from 2013/14 and 60% from its peak of 5.3 million in 2011/12. However, ChinaΆs decline will be partially offset by imports from Bangladesh, Indonesia, and Vietnam, which are expected to import a total of 2.4 million tons in 2014/15, an increase of 13% from 2013/14.

WORLD COTTON SUPPLY AND DISTRIBUTION
	2012/13	2013/14	2014/15		2012/13	2013/14	2014/15
					Changes from previous month
	Million Tons				Million Tons
Production	26.88	25.70	25.16		0.05	-0.03	-0.16
Consumption	23.34	23.55	24.33		0.00	0.00	0.00
Imports	9.83	8.72	8.17		0.00	0.00	0.03
Exports	10.08	8.72	8.17		0.02	0.00	0.03
Ending Stocks	17.89	20.04	20.87		0.03	0.00	-0.17
Cotlook A Index	88	90*	89**

* The price projection for 2013/14 is based on the ratio of ending stocks to mill use in the world-less-China in 2011/12 (estimate),

2012/13 (estimate) and 2013/14 (projection), and on the ratio of Chinese net imports to world imports in 2013/14 (projection). The price projection is the mid-point of the 95% confidence interval: 86 cts/lb to 96 cts/lb.

**The price projection for 2014/15 is based on the ending stocks/mill use ratio in the world-less-China in 2012/13 (estimate), in 2013/14 (projection) and 2014/15 (projection), on the ratio of Chinese net imports to world imports in 2014/15 (projection), and on the price projection for 2013/14. The price projection is the mid-point of the 95% confidence interval: 73 cts/lb to 109 cts/lb.