“USDA projects China is going to import 14 million bales of cotton this year. Some of that is going to be competitively-priced cotton. Most of it will be priced high, from their own reserve. The problem is that polyester costs only 82 cents a pound to them.

“China’s blend has gone from 57 percent to 40 percent. If the cotton policy remains unchanged in China, China is going to become the primary supplier of synthetic textile and apparel, and the bottom line is that we buy what China sells. If we can get those blends back, we can increase cotton consumption in the world. That happens on price.”

At last year’s gin show, Nicosia said it was critical the world produces a deficit in cotton in 2013-14, but today, he says a surplus “is okay because China is still willing to absorb it all.”

China has started to sell some of its reserve stock, Nicosia added. “They offered about a half million tons to its domestic industry. But it’s still at a really high price, substantially over the world price today.”

Nicosia said that China’s textile industry has been able to get around some of its import restrictions thanks to a clause in the WTO “that allows them to bring in unlimited imports if they pay a 40 percent tariff. For years, nobody paid attention to that. But the price differential got so wide it actually worked, and mills started importing cotton.

“That became the source of the cheapest cotton and defined the bottom. In effect, the Chinese reserve program is a new world loan program. And it’s substantially higher than USDA’s. The best news is you don’t have to pay anything for it, and the taxpayers don’t have to pay anything for it.”

The Chinese buildup of stocks doesn’t show any signs of slowing down, according to Nicosia. “We’re in year two of this buildup. Last year, they started with 18.8 million bales. This year, they bought almost 29 million bales. At one point, they owned almost 50 million bales.”

Nicosia believes China will sell another 11.3 million bales, and end up with about 40 million bales in their reserve.

When and if China decides to destock their supplies of cotton, prices could drop to the 40s and perhaps the 30s, Nicosia said. “Eventually China’s cotton is going to move. We just have to be patient.”

erobinson@farmpress.com