What is in this article?:
• China’s policies have driven world cotton market developments in 2012/13 and will continue to do so for the foreseeable future.
Developments in China distort picture
The accumulation and distribution of world stocks is distorted by the developments in China. World stocks are forecast to increase by 12.9 million bales to 81.9 million bales, a record both in volume and as a percent of world use.
But with more 13.5 million bales of growth projected for China and the United States combined, stocks in the rest of the world are forecast about even with last season.
The A-index has traded within an 11-cent range so far this season, which is the narrowest range for August-January since 2006/07.
China’s policies put a floor under world prices during the first half of the 2012/13 season. World prices were supported by the price at which the marginal (highest-duty cost) bale of imported cotton could be delivered to mills in China competitive with the available supplies of Chinese cotton.
Given the restrictions on TRQs in late 2012, China’s government effectively forced its mills to rely on the 40-percent out-of-quota duty category as the last-resort supply source. The break-even price at which mills could import cotton and pay the 40-percent duty, compared to the government’s reserve sale price of 19,000 RMB/ton ($1.37/lb.), was equivalent to an A-index of about 86 cents per pound.
World prices averaged 80-85 cents during August-December, but rose in January as global exportable supplies declined and competition for imported cotton from countries outside of China intensified.
U.S. cotton situation, 2012/13
U.S. all-cotton production in 2012/13 is estimated at 17.0 million bales, 9 percent larger than last season’s drought-reduced crop. Cotton planted acreage decreased in 2012 as prices declined from the record levels reached in 2011, but area was still the second highest since 2006.
Severe drought conditions continued for much of the Southwest in 2012, keeping U.S. abandonment at an above-average rate of nearly 24 percent, compared with the historic high of 36 percent established in 2011. In 2012, the U.S. yield averaged 866 pounds per harvested acre, the second highest on record behind 2007’s 879 pounds.
Upland production is currently estimated at about 16.3 million bales —10 percent above 2011— with an average yield of 849 pounds per harvested acre, the second highest recorded. The ELS crop is estimated slightly lower at 760,000 bales, as smaller area more than offset a record yield of 1,540 pounds per harvested acre.
Compared with last season, 2012/13 upland cotton production was higher in the Southwest and Southeast regions and lower in the Delta and West regions. Production increased in the Southwest as both harvested area and yield rose following the record drought of 2011.
Although 2012 Southwest cotton plantings were 14 percent below 2011’s 30-year high, the region still accounted for 57 percent of U.S. plantings—one of the largest in three decades. Southwest harvested area approached 4.1 million acres, near the 5-year average, despite a second year of above-average abandonment of 41percent.
As a result, the Southwest upland crop reached 5.2 million bales in 2012/13, accounting for about one-third of the U.S. cotton crop.
For the Southeast, planted acreage declined in 2012/13 to 2.7 million acres, but was still the second highest since 2006. With low abandonment and a record yield of 996 pounds per harvested acre, the 2012 Southeast crop approached 5.7 million bales, the highest in nearly a century.