China has become “the dominant force in the world cotton industry,” he notes. “They now have about 50 million bales of cotton stored in their reserves, heading to 58 million to 60 million bales by the end of the 2013/14 marketing year. If projections hold for this year’s production and use, a year from now there will be approximately 80 million to 85 million bales of cotton in the world, he says, and “China will own almost 60 million of those. But nonetheless, they continue to buy from the U.S.

“I’m asked, Why don’t they just dump a lot of that cotton, get rid of it? And with that huge reserve, why would they buy a single bale of U.S. cotton?

“There are a number of reasons: They basically bought their entire 2013 domestic production. China has a very high support price for their cotton relative to the U.S., because their cost of production is very high — $1.17 and up per pound. There was a fair amount of eastern Chinese cotton that didn’t meet their standards, and some of the cotton that did meet their standards wasn’t high grade cotton, and Chinese mills haven’t wanted it.

“China now has over $32 billion invested in cotton,” Cleveland days. “That’s a huge amount of money. Over the years, they’ve executed some officials in the government cotton hierarchy for making poor decisions, so you can bet everyone is reviewing their data extremely carefully.

“China is more consumer-oriented than ever before, and their consumers have questions about this $32 billion inventory, so the government is going to be pretty circumspect in how they manage this very expensive reserve. They can’t just suddenly stop buying cotton, because they have a large production base and input supply industry they have to support. They also go through the same crystal ball process each year that we do in trying to decide what to plant — cotton, corn, rice, etc. — and they have to maintain a competitive basis with corn and oilseeds, just as we do in the U.S.”

Cleveland says, “They have boxed themselves in a bit by their high support price and allowing imports at the same time. But they’re importing high grade cotton, which is what’s driving demand in China.”

What has been encouraging for U.S. and non-Chinese cotton, he says, is that “every time they’ve taken non-Chinese cotton out of their strategic reserve, it has sold 100 percent, lock, stock, and barrel as soon as they release it. This is very positive, because when it’s sold it opens up more quota for them to buy and bring in more non-Chinese cotton.”

China’s dominance in world cotton began around 2000, Cleveland notes, “when they decided they were going to further build their textile industry and were going to increase their production. That’s what they’ve been doing since then.

“Before that, we used about two-thirds of our domestic cotton crop here in the U.S. and exported a third. Now, we’re using about one-fourth, at best, of what we produce and we’re exporting three-fourths.”