facebook_pixel

New China Cotton Policy Will Create Shifts and Changes, but Should Stabilize Long-Term Price

Occasionally, something comes along and grabs your undivided attention like the sharp, crisp crack of a whip. There was big news in the cotton market this past week, but it seemed to pass by with little fanfare.

Over the weekend past, Chinese authorities announced that the State would no longer support a strategic reserve for cotton. The meaning – clear, plain and simple – was that cotton production and cotton-related industries would no longer be shielded from the forces of the free market. Also that weekend, the price of cotton in India began to drop following the prior week’s increase that led New York 400 points higher and retested the 88 cent level.

With New York set to drop on Monday’s opening due to the weakening Indian price, the market reversed and moved higher in response to the Chinese announcement, leaving most in the market asking, “Why are prices moving higher, when they should be moving lower?”

What was misunderstood by most – but not by the market – was that the announcement out of China was bullish, not bearish.

The Chinese announcement was the punch that slammed right into the middle of the cotton market, screaming bullish all the way. The State no longer felt it was necessary for China to devote significant land area to cotton production. It indicates that Chinese domestic textile mills – those that are needed – can source their raw cotton on the free market.

Put another way, it means that the large multitude of old, outdated textile mills, along with their massive employment base, are no longer a priority for the State. The old mills are too inefficient to operate, and the labor force is already transitioning away. Other industries have surpassed the textile industry, and the country’s economy remains well entrenched on its path of change and its longer-term trek toward maturity.

Just as it occurred in Europe of the 1800’s, Japan and South Korea in the late 1900’s and the U.S. in the early 2000’s, the textile industry has now laced up its track shoes as it departs China. There is nothing spectacular about it. It is just the way the world turns.

While the industry has – and will keep – a footing in Indonesia, Malaysia, Bangladesh and a few other locations, the darlings (or soon-to-be darlings) of today’s world cotton industry are Vietnam, Cambodia, Laos and Myanmar (Burma). Vietnam and Bangladesh are the current hot spots, and Vietnam will get hotter.

India also has a long history of textile production, and I have long claimed that one day it will have the world’s largest textile industry. It has surpassed all but China and will do that sooner rather than later.

The Chinese announcement telegraphed its intention that it would close its national reserve in a very orderly marketing way so as to not impact the world market. It is definitely in their best interest to do so. The impact in-country will be to allow both cotton plantings and production to decline, allowing other countries to seed more land area to cotton than thought just weeks ago.

That is not to say there will be an explosion in world plantings. On the contrary, planting will likely be down during the coming season, yet the planters will roll just a little bit longer in coming years. The U.S. will be firmly entrenched with 11.0 to 11.5 million acres under cotton, likely into the 2020s. Yet, cotton will still be a commodity, and thus, will find favor mostly in those areas of low cost production regions.

Just two months ago, I began a switch to becoming a long term bear. The Chinese announcement changes all that. I may not be a big ol’ fat bull, but there is a lot of good grazing in front of me. Quality remains the key word and will keep a firm bottom in this market for months to come. The 82 to 83 cent level will be the low mark.

Leave a Reply

Market Analysis Stories
Market Analysis

U.S. Sales Booming to Meet Bullish Demand

November 17, 2017

Cotton appears to be caught in a battle between supply and supply. And that keeps prices well positioned to stay where they are.

Market Analysis

India and Frost Combine to Prop Up Market

October 27, 2017

India’s plan to keep more of its cotton for domestic use, plus a potential freeze in West Texas, propped up the market during the past week.

Market Analysis

Bears Growling on Harvest and Demand Challenges

October 22, 2017

Although current trading activity represents a bearish price outlook, Dr. O.A. Cleveland still believes the 65 cent price support will hold. . .even though more experts are abandoning that position.

Market Analysis

Shurley: October Numbers Not As Expected, But Prices Hold

October 18, 2017

USDA’s October production and supply and demand estimates are like apples – pick and choose and you’ll find some numbers you like...and some you won’t.

Market Analysis

Trying to Read the Market: Bearish, Neutral or Bullish?

October 13, 2017

After finding USDA’s October WASDE report initially bearish and somewhat neutral, cotton prices went mildly bullish thinking about stronger demand and the real size of the U.S. and foreign crops.

Market Analysis

Examining Loan Program and Rate Changes for 2017

October 9, 2017

Dr. Don Shurley provides an analysis of what changes in the marketing assistance loan for 2017 could mean for cotton growers.

Market Analysis

Prices Still Sideways as Bearish Moods Grow

October 6, 2017

The market is watching weather and waiting for USDA’s October report. But bearish signs are starting to surface in some segments.

Around The Gin
Product News

Bayer Looking for FiberMax One Ton Club Growers for 2017

November 16, 2017

Cotton growers who produce an average of 2,000 lb/A on 20 or more acres planted to FiberMax varieties in 2017 are eligible to be part of the 13th annual FiberMax One Ton Club.

Product News

Monsanto Delays NemaStrike for Additional Review

November 2, 2017

After finding cases of skin irritation, Monsanto is pulling its nematode seed treatment NemaStrike for further product review.

Product News

Intrepid Trio: Naturally Balanced Nutrition in Every Granule

November 1, 2017

Intrepid Trio contains three essential nutrients for cotton plants.

Product News

Save Time, Increase Efficiencies with Mixmate

November 1, 2017

Mixmate from Praxidyn is a precision chemical mixing system for small farms to large enterprises.

Product News

Crumpler Ironworks & Fabrication

November 1, 2017

Crumpler Ironworks & Fabrication is committed to providing the highest level of service, honesty and integrity, regardless of project size.

Product News

Delivering Proven Performance Across the Cotton Belt

November 1, 2017

Seed varieties, traits and crop protection products from Bayer deliver proven performance to growers across the Cotton Belt.

Product News

Growers Continue to Count on Americot and NexGen

November 1, 2017

Americot is dedicated to working with cotton growers throughout the Cotton Belt to provide elite performing NexGen varieties within the marketplace.

Product News

Deere Adds New Narrow Track Versions to 9RX Tractor Lineup

November 1, 2017

John Deere has added three new 9RX Narrow Track Tractors, expanding its lineup of high-horsepower machines.

Latest News
Market Analysis

U.S. Sales Booming to Meet Bullish Demand

November 17, 2017

Cotton appears to be caught in a battle between supply and supply. And that keeps prices well positioned to stay where they are.

Market Analysis

Increased Cotton Demand Moving the Market

November 11, 2017

A bullish supply demand report for November proves that demand moves markets. And demand for cotton has resurfaced.

Market Analysis

Cleveland: Yields, Quality, Consumption Still Rising

November 4, 2017

Reports of high yields, premium quality and growing consumption are keeping prices at the higher end of the trading range.

Market Analysis

India and Frost Combine to Prop Up Market

October 27, 2017

India’s plan to keep more of its cotton for domestic use, plus a potential freeze in West Texas, propped up the market during the past week.

Market Analysis

Bears Growling on Harvest and Demand Challenges

October 22, 2017

Although current trading activity represents a bearish price outlook, Dr. O.A. Cleveland still believes the 65 cent price support will hold. . .even though more experts are abandoning that position.

Market Analysis

Shurley: October Numbers Not As Expected, But Prices Hold

October 18, 2017

USDA’s October production and supply and demand estimates are like apples – pick and choose and you’ll find some numbers you like...and some you won’t.

Market Analysis

Trying to Read the Market: Bearish, Neutral or Bullish?

October 13, 2017

After finding USDA’s October WASDE report initially bearish and somewhat neutral, cotton prices went mildly bullish thinking about stronger demand and the real size of the U.S. and foreign crops.

Market Analysis

Examining Loan Program and Rate Changes for 2017

October 9, 2017

Dr. Don Shurley provides an analysis of what changes in the marketing assistance loan for 2017 could mean for cotton growers.

Market Analysis

Prices Still Sideways as Bearish Moods Grow

October 6, 2017

The market is watching weather and waiting for USDA’s October report. But bearish signs are starting to surface in some segments.

Market Analysis

Cleveland: Market in Hang On and Wait Mode

October 1, 2017

Cotton prices are holding without clear direction right now, as the market continues to watch USDA projections and harvest conditions for answers.

Market Analysis

Lower Chinese Stocks, Higher Polyester Prices Offer Market Hope

September 22, 2017

The market is holding steady, thanks again to China. Their Reserve auction has reduced cotton stocks and bumped consumption. And now, polyester prices are rising as the Chinese trim production.

Market Analysis

USDA Spins Market with Record Supply-to-Use Ratio

September 15, 2017

Hurricanes were but a mere hiccup for the world and U.S. crops. Instead, USDA spun some record-setting numbers that left the market dizzy.

Market Analysis

Shurley: Cotton Makes a Hard Landing

September 15, 2017

Following USDA’s September numbers, December cotton seems to have landed back in the 69-cent, pre-Harvey area.

Market Analysis

Higher Prices Holding as Winds Keep Blowing

September 10, 2017

An ill wind is blowing amidst the chaotic cotton trading wrought by back to back hurricanes slamming into two of the country’s major cotton producing regions. But which way does the wind blow?

Market Analysis

Post Harvey, 75 Cents Back in Cotton’s Sights

September 2, 2017

It remains to be seen if the greater loss from Harvey will be to cotton quantity or quality. But it likely means a wider trading range, with 75 cents now possible.