PRINTABLE VERSION   EMAIL TO A FRIEND   RSS FEEDS 08:25 UK, 8th Apr 2014, by Agrimoney.com
Output fall lifts ideas of China's cotton imports

China's cotton imports may not fall, quite, as much as has been thought next season, as cutbacks to a generous subsidy programme curtail production, while price discrepancies favour buy-ins.

China - the top cotton importer, whose purchases are a big driver of world prices - will buy-in 8.27m bales (1.80m tonnes) of the fibre in 2014-15, the US Department of Agriculture's Beijing bureau said.

While down on the 11.02m bales in imports expected for the current season, which ends in July, the figure is above the 8.0m bales that the USDA itself forecast in February, in its first forecasts for next season.

The bureau's estimate reflects in part ideas that a revamp of China's cotton subsidy regime, which has supported prices at levels well above world market rates, will lead to a bigger drop in production than initially though, with output seen falling below 30m bales for the first time in nine years.

The initial forecast was for a crop 650,000 bales bigger, at 30.5m bales.

‘Vast expenses'

The harvest forecast reflects an idea that Beijing's revised cotton subsidy programme, which will be limited initially to the main producing province of Xinjiang, will curtail output in other states.

"Without the government support payments, farmers in the Yangtze and Yellow River production regions are expected to switch to alternative crops, thus decreasing overall cotton acreage and production," the bureau said in a report.

The new scheme will reward farmers through direct payments rather than a guaranteed price, which has been maintenance at levels of 20,400 remninbi ($3,290) a tonne over the past two seasons, equivalent to nearly 150 cents a pound, has lifted domestic prices well above those in the world market.

"As a result of this support policy, the government has absorbed vast expenses for handling and storage, the textile industry has endured inflated, above-market cotton costs and in return, the policy returns in cotton acreage and production gains have been negligible," the report said.

‘Significant challenges'

The bureau also took a more downbeat view on cotton use by China, the top consumer, than the initial USDA forecast, highlighting growing costs from the likes of rising minimum wage levels besides the competitiveness of alternative fibres, notably synthetic ones.

"The textile industry faces significant challenges, including declining orders from overseas, appreciating Chinese currency and rising production costs for key inputs such as raw materials and labour."

Nonetheless, imports will be supported by a relatively high domestic price.

"Industry experts believe that, so long as the price gap between domestic and international markets remains around 5,000 remninbi a tonne, Chinese cotton buyers will continue to pay the duty and import cotton outside the tariff rate quota to meet the needs for various grades/quality of cotton."

Although the government has, from last week, cut the price of cotton sold from state stockpiles by 750 remninbi to 17,250 remninbi a tonne, increasing the apparent loss on sales, this remains well above the world market price.

LINKS
Agricultural Commodities
Agricultural Markets
Agricultural Companies
Agricultural Events