What is in this article?:
• According to Gary Adams, with the National Cotton Council, one factor holding up cotton prices today are recent Chinese purchases intended to increase reserve stocks.
• China began purchasing significant quantities of cotton in 2011, Adams noted, ostensibly to “stabilize their market and support the price to their farmers of approximately $1.40 per pound.
• They procured around 14 million bales of domestic cotton, which is roughly 35 percent of China’s annual mill use.”
JOHN GILLILAND, left, legal counsel for the National Cotton Council, visits with Gary Adams, vice-president of economics and policy development for the NCC, during a summer joint meeting of the American Cotton Producers and the Cotton Foundation in Nashville, Tenn.
China is still dominating the news behind the world cotton market, but large supplies, falling demand and competing commodities are increasingly important factors to watch, says Gary Adams, vice president of economics and policy development for the National Cotton Council.
Speaking at a joint summer meeting of the American Cotton Producers of the National Cotton Council and the Cotton Foundation, Adams noted that cotton demand began to decline in 2011, after record high cotton prices of around $2 a pound combined with a struggling world economy, led to a general decline in apparel and textile demand and a shift in market share away from cotton toward manmade fiber.
Adams estimates the shift at roughly 5 percent compared to 2010. “This continues to be one of the concerns hanging over the market,” Adams said. “When does that demand turn around?”
As demand waned, USDA dropped its forecast for global mill consumption significantly, from 115 million bales forecast in early 2011 to 105 million bales by the end of the marketing year. Production remained steady, at 122 million bales, pushing world ending stocks on July 31, 2012 to just under 68 million bales, which represents a burdensome stocks-to-use ratio of 64 percent.
Adams believes cotton prices would be lower today if China was not holding such a large percentage of the world’s surplus stocks. China began purchasing significant quantities cotton in 2011, Adams noted, ostensibly to “stabilize their market and support the price to their farmers of approximately $1.40 per pound. They procured around 14 million bales of domestic cotton, which is roughly 35 percent of China’s annual mill use.”
China also added around 6 million bales of imported cotton, putting the Chinese reserve at around 20 million bales.
“What we are seeing are some changes in dynamics,” Adams said. “China’s internal price is being held at a higher level than world prices, by as much as 50 cents a pound. It’s continuing to put pressure on China’s spinning industry, and China is starting to look at more imports of yarn.”
Adams noted that with cotton prices at a premium to polyester, “we’re continuing to see a shift away from cotton to polyester.”