What is in this article?:
- Could new crop cotton reach 85 cents?
- Positive for U.S. exports
• The big pile of cotton that China's government is holding in reserve has long been pressuring cotton prices.
• But the market has been encouraged lately because Chinese textile mills are importing cheap yarn rather than buying it from its domestic spinning mills.
• Where are the yarn exporters getting their raw cotton? From the United States.
While China’s huge reserve of cotton is applying negative pressure to cotton prices, world yarn production outside of China is pushing them higher, say market analysts speaking at the Ag Market Network’s January conference call.
The panel spoke about cotton fundamentals following USDA’s Jan. 11 World Agricultural Supply and Demand Estimates.
World cotton fundamentals for 2012-13 were bearish on the surface, with increasing world production and lower consumption. Also bearish were estimated world ending stocks, which reached an all-time high of 82 million bales, up 2 million from last month. USDA estimated world production at around 119 million bales and consumption at 106 million bales.
China is hanging on to about half of the world’s ending stocks, noted O.A. Cleveland, professor emeritus, Mississippi State University, and no one is exactly sure of how it plans to dispose of them.
“The Chinese have bought something around 25 million to 26 million bales directly from its cotton producers. They’re paying their cotton farmers directly for their cotton.”
It’s a policy that Chinese decision makers are starting to question, said Cleveland, noting that the government’s investment in the pile of cotton is about $32 billion.
Cleveland says that the Chinese “are finally beginning to reduce their stocks, selling them to the mills at somewhere around a $1.35 to $1.38 a pound.”
However, Chinese textile mills can import cotton for about $1.19, which puts them at a competitive disadvantage if they have to turn to domestic cotton. “As a consequence, the Chinese textile industry is importing yarn rather than buying from spinners,” Cleveland said.