China just recently started offering for sale quantities of their cotton, Cleveland says. “They were offering textile mills 2008 crop cotton; now they’re offering 2011 crop cotton. But they’re not getting many takers. They’re only selling about 20 percent to 25 percent what they offer on a daily basis.

“They’re selling middling 1-3/32 cotton to the textile mills for $1.38 per pound roughly. The mills can buy a bale of U.S. cotton and land it in China for $1.27 per pound, with about a 15 percent tariff paid on it. Because of the cost, Chinese textile mills by and large aren’t using Chinese cotton; much of it is imported, some from the U.S.

“Chinese spinning mills aren’t particularly active. The government is officially holding the price of their cotton very high to textile mills, which makes them uncompetitive with international mills. They’ve also maintained a very low polyester price, so Chinese mills can buy polyester 10 percent cheaper than last year. In other markets around the globe, polyester is only 2 percent to 3 percent cheaper. So for whatever reason, China hasn’t lowered their polyester price and they are very favorable toward using polyester in their textile mills.”

However, Cleveland says, the Chinese are importing yarn. “There is no tariff on importing yarn; it comes in duty-free, which allows the mills to get around the problem of buying expensive cotton. By importing yarn instead, they can compete in the world textile market. Pakistan, India, Vietnam, South Korea, the U.S., are selling yarn to China.

It’s cheaper to import quality U.S. cotton and spin it in China than to buy quality Chinese cotton and spin it in China.”

The Chinese government is preparing to set the 2013 cotton price, he says. “We have no idea what it’s going to be. They’ve not set prices for wheat or other commodities yet, but we’re anticipating they will lower the price of cotton, which will certainly have an impact on their plantings. We expect they will increase their acreage of food grains and feed grains, and information I’m seeing suggests they will reduce cotton production by 10 percent to 15 percent. We’re certainly looking for them to have a significant decrease, as is the case in the U.S.”

The government, Cleveland says, “is attempting, and more than likely will succeed, to move their cotton production area from the eastern seaboard to the arid far west, where there are very large mechanized farms.