What is in this article?:
- Restoring China‚Äôs cotton consumption is key to U.S. market
- Increasing consumption crucial
• China's market distorting policies are propping up cotton prices despite record world ending stocks and slumping demand.
• Restoring demand is one key, according to Joe Nicosia executive vice president of Louis Dreyfus Commodities, but so is reducing supply though lower acres.
BILL GILLON, left, president of the Cotton Board, Bill Norman, vice-president, technical services at the National Cotton Council; and Kenneth Hood, cotton producer and chairman of the Beltwide Cotton Conferences Steering Committee, visit at the close of the BWC Production Conference in San Antonio. Hood told conference participants he was excited about the new Beltwide format which will be launched in New Orleans next January.
Increasing consumption crucial
Increasing consumption is also crucial.
“The world needs Chinese demand,” Nicosia said. “We have to get it back. China has the premier position, and the world is set up for China to be the premier textile manufacturer and user of cotton in the world. It will be a disaster if we cannot get Chinese consumption back up.
“To do that, we have to provide textile mills with competitively-priced cotton. Once that happens, consumption will start to grow again, and we’ll be able to match our growth in production. World consumption used to be 123 million to 124 million bales. Now it’s down to 106 million bales. That’s 17 million bales not being consumed. And of that is in China. We need to bring it back to where it was before.”
It will require balance in the marketplace, Nicosia said. “The front end of the market has to remain cheap enough to promote cotton consumption at a level at which textile mills are encouraged to use cotton. The back end of the market still has to be prepared to protect acreage.
“We don’t want a complete collapse. We know it’s hard to get it back when that happens. In 2008-09 when cotton prices collapsed and acreage collapsed, we had to take prices to substantially higher levels before we got that big push in acreage around the world. We don’t want to cause that kind of wild dynamics again.”
Nicosia advised growers to watch for the marketplace shifting its focus from large global supplies to the tight free (available for purchase) stocks. “It will get nervous and move up. That’s when you should be pricing your cotton. And there will be opportunities for some small price spikes to get that done.
“Use those types of opportunities to receive a couple of extra cents. Keep your options open for 2014-15. A lot can change in the world very quickly. Not just for corn and soybean prices, but Chinese policies can change as well. I think once we turn the corner in 2014-15, we reach a point of equilibrium and start to grow consumption again.”
Nicosia doesn’t believe China will suddenly dump its huge reserve on the marketplace. “They spent a lot of money on that cotton. But it is going to be a wet blanket that is going to hang over the market for quite some time.”