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