What is in this article?:
- When corn and cotton prices start with 7, it’s not good for cotton acres
- Fundamentals may improve
- New players in textiles
- 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.
New players in textiles
Adams said there could be some new players in the world textile industry in the coming years. “China was the growth engine through 2006. They have not been a growth engine between 2006 and 2011. Going forward, China has had a contraction in mill use, and the growth of mill use is occurring outside of China.
“That’s a new dynamic from where we’ve been in the last 15 years. Countries like India, Pakistan and Bangladesh are moving forward in terms of yarn spinning.”
India’s status as a competitor with U.S. cotton could also be changing, according to Adams. “India has caused a lot of uncertainty in cotton market, as it’s gone from being a very aggressive cotton exporter to instituting an export ban earlier this year. And now they’re setting themselves up where they’ll actually be an importer of cotton. They’re expected to be a much smaller exporter of cotton in 2012. So we should see less competition coming out of India.”
Adams noted that China’s stock building policy could continue. “As much as 24 million bales of stocks could be in China’s government reserve by the end of the 2012 marketing year. They have already announced that they are going to operate the reserve policy for 2012. The question is when they release the stocks. They’ve indicated that they don’t want to release cotton at a loss. They already have $1.20 a pound tied up in it.”
Cotton acreage could take a big hit in 2013, as it must compete with corn and soybeans on the supply side, noted Adams. “Frankly, when the cotton price and the corn price both start with a seven, were not in good shape for setting up the acreage decision in 2013. I think we’ll see some acres move out of cotton in other countries as well. So as we move into 2013, we can alter this balance sheet a little bit. And we may be talking about some tighter stocks.”
Producers should keep an eye on what China does with its reserves, Adams said. “At some point, will they see an opportunity to try and release cotton? That’s the biggest uncertainty over the next several months.”
