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Put another way, it means that the large multitude of old, outdated textile mills, along with their massive employment base, are no longer a priority for the State.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

Planting Progress, China’s Reserve Auctions Driving Market

May 23, 2016

Cotton futures had a few triple digit days this past week. Yet, thanks to a combination of influences, the bulls carried the week – if only slightly.

Market Analysis

Range-Bound Prices and Textile Trade Deficits

May 6, 2016

The 61-66 cent trading range remains firmly entrenched, as Chinese cotton auctions begin and the textile trade deficit picture gets cloudy.

Market Analysis

Little Price Movement as Market Watches Planting, China

May 2, 2016

There was scarce cotton news the market found interesting in the past week. Now, all eyes are on Mother Nature and the Chinese cotton auction for price direction.

Market Analysis

Cleveland: Chinese Program Providing Market Stability, Price Boost

April 25, 2016

Cotton prices continue to advance, thanks to stability from an unlikely source – China.

Market Analysis

Shurley on Cotton: Recent Events and Market Direction

April 22, 2016

Although it’s a painful time for cotton right now, there are potential positive factors on the horizon that could eventually lead to better prices.

OA Cleveland
Market Analysis

Bulls and Bears Collide in Eventful Market Week

April 18, 2016

An exciting, bullish week for cotton prices turned bearish, as prices ran ahead of demand, the Chinese announced reserve sale plans, and USDA released its April WASDE report.

Market Analysis

Prices Tick Upward as Demand Debate Continues

April 11, 2016

Cotton prices moved higher in New York at week’s end. But all O.A. Cleveland heard about were his comments on Adidas and demand. So naturally, there’s more.

Around The Gin
Product News

Record Yields Set by 2015 FiberMax One Ton Club

May 4, 2016

The 127 members who qualified for the FiberMax One Ton Club pushed cotton yields and quality to higher levels in 2015.

Product News

Meister Media Worldwide Website Relaunches With New Resources

April 22, 2016

Meister Media Worldwide — publisher of Cotton Grower magazine – has relaunched its corporate website, highlighting information and services available from one of agriculture’s leading media companies.

Product News

ReinCloud Promises Remote Control

April 18, 2016

New software set to combine irrigation management and data collection – all in the palm of your hand.

Product News

Search Begins for Deltapine Class of 17

April 14, 2016

Deltapine’s NPE program is nine years old, and the search for the company’s Class of 17 cotton varieties is underway.

Product News

Texas Farmer First to Plant Enlist Cotton Variety

April 11, 2016

Dean Hansen of El Campo, TX, was the first cotton grower in North America to plant the first commercially-available cottonseed with the Enlist cotton trait.

Product News

New Options for Roundup Ready PLUS Program

March 25, 2016

The Roundup Ready PLUS Crop Management Solutions program for 2016 includes a new tool for weed management and new incentives for farmers looking to fight insect pests in corn.

Product News

Greenleaf Launches easyFlow Closed Transfer System

March 24, 2016

Greenleaf Technologies has launched the company’s new easyFlow closed transfer system for the North American market.

Product News

AgLogic Launches Aldicarb Product in Georgia

March 15, 2016

Growers in Georgia will be able to use a new aldicarb pesticide in 2016 for nematode and early season pest control.

Latest News
Market Analysis

Planting Progress, China’s Reserve Auctions Driving Market

May 23, 2016

Cotton futures had a few triple digit days this past week. Yet, thanks to a combination of influences, the bulls carried the week – if only slightly.

Market Analysis

Shurley on Cotton: Prices Get a Much Needed Bounce

May 19, 2016

April was a good month for cotton prices. So far, May hasn’t been, but prices seem to be attempting a slight recovery.

Market Analysis

USDA Report Shifts Numbers, Pressures Prices

May 16, 2016

USDA’s May supply demand report brought pressure to the cotton market and moved prices slightly lower to the critical 60-61 cent support level.

Market Analysis

Range-Bound Prices and Textile Trade Deficits

May 6, 2016

The 61-66 cent trading range remains firmly entrenched, as Chinese cotton auctions begin and the textile trade deficit picture gets cloudy.

Market Analysis

Little Price Movement as Market Watches Planting, China

May 2, 2016

There was scarce cotton news the market found interesting in the past week. Now, all eyes are on Mother Nature and the Chinese cotton auction for price direction.

Market Analysis

Cleveland: Chinese Program Providing Market Stability, Price Boost

April 25, 2016

Cotton prices continue to advance, thanks to stability from an unlikely source – China.

Market Analysis

Shurley on Cotton: Recent Events and Market Direction

April 22, 2016

Although it’s a painful time for cotton right now, there are potential positive factors on the horizon that could eventually lead to better prices.

Market Analysis

Bulls and Bears Collide in Eventful Market Week

April 18, 2016

An exciting, bullish week for cotton prices turned bearish, as prices ran ahead of demand, the Chinese announced reserve sale plans, and USDA released its April WASDE report.

Market Analysis

Prices Tick Upward as Demand Debate Continues

April 11, 2016

Cotton prices moved higher in New York at week’s end. But all O.A. Cleveland heard about were his comments on Adidas and demand. So naturally, there’s more.

Market Analysis

Shurley on Cotton: Trying to Decipher the Numbers

April 4, 2016

Spending a little time discussing acres planted is fine for now. But it will all come down to how the weather impacts planted acres, and what happens during the growing season.

Market Analysis

Of Demand, Adidas and Planting Intentions

April 4, 2016

The market wants to make a major move. USDA says cotton acres will be will up. Yet demand remains the only game in town – everything else is window dressing.

Market Analysis

Riding Out Cotton’s Flooded Market

April 2, 2016

Joe Nicosia says better days are coming. But American cotton must persevere as China finally unloads its massive reserves.

Market Analysis

Cleveland: All Eyes on USDA Planting Intentions

March 28, 2016

As prices remain unchanged and China remains quiet, the cotton market awaits the USDA planting intentions report for possible good news.

Market Analysis

China Still Sits Heavy on the Market

March 21, 2016

Chinese reserve stocks still sit as a heavy hat on cotton prices, providing little reason to break above the 59-cent price resistance.

Market Analysis

Cleveland: Quality Premiums Are Coming

March 13, 2016

The quality premium for U.S. cotton has been holding steady, but improvement is on the horizon. Hold for it.