What is in this article?:
- Winning the blend in China is big for U.S. cotton growers
- Worldwide cotton demand problem
- Chinese can manipulate prices
• Speaking at the recent Southern Cotton Growers and Southeastern Cotton Ginners annual meeting, Joe Nicosia said a big part of the loss of cotton use in China comes from changes in the blend rates used by Chinese mills.
• A few years back Chinese blends were more typically in a 60:40 ratio of cotton to polyester. Today the ratio is moving toward 60:40 in favor of polyester.
COTTON ACREAGE in the Southeast may not take as big a hit as projected based on prices, according to cotton marketing expert Joe Nicosia.
Worldwide cotton demand problem
“Worldwide, we have a cotton demand problem, not a cotton production problem. For U.S. growers it’s critical to build world markets for cotton and for cotton to increase in use in mills, even in blends in mills around the world.”
“Last year the world used about 106 million bales of cotton. If we can get the cotton blend back up to the 60 percent range, world usage could easily go up to 120-122 million bales.
“Cotton usage is coming back in India, Pakistan and other large textile producing countries, because they are buying cotton at world market prices in the 70-80 cents a pound range. Unfortunately, India for example, has a textile industry only roughly 14 percent the size of China’s textile industry. So, winning the blend in China is necessary to significantly influence world cotton usage.”
Currently, China has in reserve approximately 45 million bales of cotton. They sell their cotton to domestic mills for $1.25 a pound. Chinese mills can import unlimited cotton from world sources, but they pay a 40 percent tariff on this cotton. When prices are in the 70-80 cents a pound range, it’s good business for Chinese mills to buy cotton from outside the country.
Once cotton prices get too low, Chinese mills will buy more foreign cotton, and the Chinese will not likely let that happen, because their surplus cotton is too valuable.
“While the big Chinese surplus may seem like a threat to U.S. cotton growers, and it is long-term, for the most part it’s a good thing and helps keep prices from going up very high or down very low, Nicosia says.
“In the long-run we will at some point have to pay-the-piper for an over-supply of world cotton.
“I don’t think it will be like running off the fiscal cliff that we hear so much about these days, rather, I think it will be more of a gradual pay back.”
Last year China imported 24.5 million bales and they needed about 4.5 million bales. Demand for cotton from China has sustained prices globally.
Had China only bought the amount of cotton they needed to run the country’s textile mills, the effect on U.S. cotton growers and growers around the world would have been catastrophic.