US farm officials highlighted the uncertainty over one of
the biggest numbers in the cotton market – China's imports – by cutting their
forecast to a level 30% below an estimate issued by a leading sector group
earlier this week.
China's imports are widely expected to fall dramatically in
2013-14, a reflection of the extent of the country's inventories, which account
for more than half the world total, and high domestic prices which have
prompted many textile mills to buy in foreign yarn.
However, exactly how fast that decline will be from the 20m
bales (4.4m tonnes) or so last season is the subject of some debate, with the
answer a matter of potentially huge importance for international prices.
China is by far the biggest cotton importer, responsible for
more than 40% of world buy-ins last year, and for keeping world prices well
above the level that would be expected given that worldwide inventories are the
'Huge domestic stocks'
The International Cotton Advisory Committee earlier this
week forecast a, relatively, small decline in imports, to 3.1m tonnes, flagging
that buy-ins remain considerably cheaper than the price, equivalent to more
than 130 cents per pound at which China is selling cotton from state stockpiles.
"The sales price of cotton from China's reserve is
significantly higher than the import price with a 40% tariff," the ICAC
However, the US Department of Agriculture's bureau in
Beijing cut their estimate for China's imports to 2.2m tonnes, below the
department's official 2.4m-tonne forecast, besides the ICAC number, and citing "massive
state stocks, import constraints and slowing consumption".
It added: "Huge domestic stocks, tariff rate quota constraints
and softening consumption and factors which continue to influence import
Cotton vs yarn
In fact, imports fell by 26% to 618,340 tonnes in the
August-to-October period, the first quarter of the 2013-14 marketing year.
And the bureau highlighted the appeal to textile mills of turning
abroad for yarn, over which there is no import quota, and which is cheap
compared with home-grown raw cotton itself.
The average price of imported yarn for the first 10 months of
the year averaged $3,212 a tonne, not far off the floor value of $3,344 a tonne
at which the government buys cotton itself in an effort to support farmers – but
a drive which has skewed the domestic market, hiking market prices.
The fall in imports of cotton contrasts with a 46% jump in
yarn buy-ins in the January-to-October period.
Indeed, China's yarn imports, forecast at 2m tonnes in 2013,
are becoming comparable with those of cotton.
Change of policy
The bureau also highlighted the potential for a change to
China's cotton support policy, to resolve the market distortion caused by the
"In a recent industry seminar, a government official
suggested that China may reposition cotton in its economy due to its lack of
comparative advantage, compared to other crops, and the availability of
international cotton resources to meet China's textile industry demands.
"A new policy is expected to be announced in 2014."
Measures under discussion include direct support to farmers
and enhanced crop insurance.