China’s new agricultural policy could finally start a process everyone knew was coming — the unloading of China’s huge stockpile of cotton. The impact on world cotton trade could come as early as 2014-15, according to Joe Nicosia, executive vice president, Louis Dreyfus Commodities.

Speaking at the Mid-South Farm and Gin Show, Nicosia said that China has “studied many of the U.S. government policies to help them decide what they want to do going forward. They seem to have settled on some form of target price or subsidy program going to their growers. This is going to be a big change. The policy is not finalized yet. We should expect to see more clarity in the months ahead.”

The policy would make China’s domestic cotton production available to China’s domestic mills, rather than stuck off the market in a reserve, as it has been for the last four years. “At first that would not be good for U.S. cotton exports, because China would import less cotton. But ultimately this is the beginning of the process of what has to happen to work through a 100-million-bale world carryover.”

Around 57 million bales of the world carryover are in China’s reserve program, and do not include cotton stored in the countryside or in textile mills.


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Nicosia says some lost export potential could be offset with higher consumption, starting with increasing the percentage of cotton in the cotton/polyester blend. The blend suffered as China’s textile’s mills increased the percentage of polyester to offset the high cost of its domestic cotton in the reserve. Nicosia estimates cotton loss at about 7 million bales of consumption annually.

To regain the higher blend percentage will depend largely on U.S. cotton price competitiveness with polyester.

But cotton customers have to respond as well, according to Nicosia. “The two most discernible consumers in the world are citizens of the United States and the European Union. We are the ones who are supposed to check the labels. We are the ones who are willing to pay for cotton. We are the ones who understand that polyester doesn’t breathe. In reality what we have found in the last four years, is that we buy what they make.”

The good news is that since 2011, cotton in the blend “is finally rising, and it’s rising higher than the trend line, at about 2.5 percent to 3 percent. But it’s going to take several years to recover.”

As a result of new ag policy, Nicosia estimates a decline in the Chinese cotton crop in 2014-15, to about 30.5 million bales. “With their consumption at 38 million bales, which is rising a little bit, the gap would be 7.5 million bales.”

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China’s imports could fall from an average of 16 million bales to around 7 million bales. “Currently USDA estimates that the world trade is going to drop from about 39 million bales to about 37 million bales in 2014-15. We estimate that could be as low as 33 million bales.”