What Would a Change in Chinese Cotton Policy Mean?

For several years, cotton producers from around the globe have kept one eye on China’s massive cotton reserve program that has propped up cotton prices and simultaneously threatened to send the market into a free fall. Now some, including Joe Nicosia, executive vice president of Louis Dreyfus Commodities, say the Chinese could finally be on the verge of changing that policy – for better or for worse.

Speaking to a room full of cotton industry professionals at the Mid-South Farm and Gin Show, Nicosia said 2014/15 could be the year the Chinese government begins the process of reducing its 57 million bales of reserve cotton stocks onto the market. Drawing down those 57 million bales represents an enormous task – and that number doesn’t include the bales that are currently being stored in mills and on farms around the country. And, Nicosia says, China was still importing cotton at least through the end of March.

But there is no doubt that China is looking for a way out of its currently bloated cotton reserve policy.

“They have new leadership in China,” Nicosia said. “They realize what they’ve done has created some kind of dislocations, and they have to step forward with a new policy in 2014/15.

“So China has finally come to the table and said ‘Alright, it’s time for us to do something different.’”

The Chinese studied many of the policies previously employed by the United States to determine how they should move forward, according to Nicosia.

“They seem to have settled on some form of target price or direct subsidy program going to their growers so as to try and free up their stocks instead of having everything go into their reserve programs, which is what is currently happening,” Nicosia said.

In the past, China had supported its farmers by buying the cotton directly from them at advanced prices – often as much as $1.20 per pound, before placing that cotton into its domestic reserve. Nicosia noted that this shift in policy was not finalized, but the government was at least considering a change.

Of course, the ramifications from such a policy shift would be felt around the globe. For U.S. cotton producers, the most apparent effect from this change would be a reduction in exports to China. By lowering its premiums paid to domestic farmers, the Chinese government would open the door for Chinese mills to begin to source their cotton domestically – reducing the need for cheaper, imported cotton from America. This would have an immediate bearish impact on cotton prices in the U.S. But, Nicosia said, this is a necessary growing pain for the cotton market.

“Ultimately, this is the beginning of the process of what has to happen for us to start to work through a 100-million-bale carryover,” Nicosia said, referencing global carryover stocks in 2013/2014 – a figure for which China accounts for over half.

Silver Linings

Although a Chinese policy shift would have negative short term impacts on the U.S. cotton market, there are potential positive implications as well.

For starters, without a lofty support price, fewer Chinese growers would plant cotton in the coming year. Nicosia estimates the country’s production could drop to as low as 30.5 million bales in 2014/15. Paired with increasing Chinese consumption of 38 million bales in a year, the country could end 2014/15 with a net cotton deficit of around 7.5 million bales.

Topics:

Leave a Reply

Market Analysis Stories
Market Analysis

Cotton Prices Reach Upper Third of Historical Range

March 17, 2017

The cotton bull made another impressive stand on the past week, as cotton prices continue to hold in the upper one-third of its historical price range.

Market Analysis

It Bears Repeating – Price New Crop Now!

March 13, 2017

Two things to keep in mind: If you like the price enough to plant cotton, then like the price enough to sell some of it. And, December futures are expected to move 10-15 cents lower.

Market Analysis

Cleveland: Of Export Sales, USDA Numbers and BCI

February 27, 2017

Dr. O.A. Cleveland praises U.S. cotton exports, muses about USDA predictions and calculations, and ponders the role of Better Cotton Initiative in the U.S.

Market Analysis

Time for Growers to Start Pricing Their 2017 Crop

February 17, 2017

Dr. O.A. Cleveland believes growers should price at least 50% of their anticipated 2017 crop now with the December ICE contract above 74 cents.

Market Analysis

Shurley on Cotton: A Lot Going on and a Lot to Digest

February 13, 2017

The 2017 cotton market appears to be on increasingly stable and improved economic footing compared to 2016.

Market Analysis

NCC: U.S. Cotton Industry Hinges on World Demand, China, Global Supply

February 11, 2017

According to NCC economists, several key questions will shape the 2017 economic outlook for the U.S. cotton industry.

Market Analysis

Market Fueled by Demand, Mills and Shrinking Carryover

February 10, 2017

Cotton futures continue to hold tight to the 75-76 cent level, thanks to ever-increasing demand, mill indecision and shrinking world carryover.

Around The Gin
Product News

BASF Expands Dicamba Manufacturing Facility

March 22, 2017

BASF has completed a $270 million expansion of its Beaumont, TX, facility – the largest agricultural products facility investment in company history.

Product News

Topguard Terra Label Amendments for Cotton Root Rot in Texas

March 7, 2017

Texas growers now have additional preplant and post planting options for using Topguard Terra to control cotton root rot.

Product News

Advanced Traits from PhytoGen Protect Yield and Quality

March 6, 2017

PhytoGen varieties offer more and better in-plant, native trait protection to help cotton thrive, protect quality and optimize yields.

Product News

Six Greenleaf Nozzles Approved for Use with XtendiMax

February 24, 2017

Six TurboDrop D Series nozzles from Greenleaf Technologies have been approved for use with Monsanto’s XtendiMax herbicide with VaporGrip Technology.

Product News

EPA Approves DuPont’s FeXapan Dicamba Herbicide

February 17, 2017

DuPont has received EPA registration for FeXapan herbicide plus VaporGrip Technology, a low-volatility dicamba formulation for use on cotton and soybean varieties carrying traits that provide tolerance to dicamba and glyphosate herbicides.

Product News

Fourteen Southern States Register Enlist Duo for Use on Enlist Crops

February 14, 2017

Fourteen Southern states have granted state registration of Enlist Duo herbicide for use on Enlist cotton and other crops, following federal registration received in January.

Product News

BASF Application Academy Adds Online Training Module

February 2, 2017

BASF has added an online training module to its On Target Application Academy stewardship program to help increase education of new and advanced herbicide technologies.

Product News

Bayer Offers Shared Risk Program for FiberMax, Stoneville Growers

January 26, 2017

Bayer is helping support the economic sustainability of cotton growers through the company’s 2017 Shared Risk Program for those who plant FiberMax and Stoneville cotton seed.

Latest News
Market Analysis

Cotton Prices Reach Upper Third of Historical Range

March 17, 2017

The cotton bull made another impressive stand on the past week, as cotton prices continue to hold in the upper one-third of its historical price range.

Market Analysis

Shurley on Cotton: New Crop Strength and Outlook

March 13, 2017

Four factors are driving the new crop strength and outlook for cotton in 2017.

Market Analysis

It Bears Repeating – Price New Crop Now!

March 13, 2017

Two things to keep in mind: If you like the price enough to plant cotton, then like the price enough to sell some of it. And, December futures are expected to move 10-15 cents lower.

Market Analysis

Grab Hold. The Bulls Are Running!

March 6, 2017

The cotton bull, with freshly sharpened and longer horns, has broken out and is trying to push old crop May and July contracts above 80 cents.

Market Analysis

Cleveland: Of Export Sales, USDA Numbers and BCI

February 27, 2017

Dr. O.A. Cleveland praises U.S. cotton exports, muses about USDA predictions and calculations, and ponders the role of Better Cotton Initiative in the U.S.

Market Analysis

Time for Growers to Start Pricing Their 2017 Crop

February 17, 2017

Dr. O.A. Cleveland believes growers should price at least 50% of their anticipated 2017 crop now with the December ICE contract above 74 cents.

Market Analysis

Shurley on Cotton: A Lot Going on and a Lot to Digest

February 13, 2017

The 2017 cotton market appears to be on increasingly stable and improved economic footing compared to 2016.

Market Analysis

NCC: U.S. Cotton Industry Hinges on World Demand, China, Global Supply

February 11, 2017

According to NCC economists, several key questions will shape the 2017 economic outlook for the U.S. cotton industry.

Market Analysis

Market Fueled by Demand, Mills and Shrinking Carryover

February 10, 2017

Cotton futures continue to hold tight to the 75-76 cent level, thanks to ever-increasing demand, mill indecision and shrinking world carryover.

Market Analysis

78 Cent Cotton? The Opportunities are There.

February 6, 2017

Titanic bullishness has captured the cotton market, providing opportunities for nearby cotton futures prices to top 78 cents.

Market Analysis

Strengthening Prices, Strong Demand and Bon Jovi Jeans

January 30, 2017

The narrow three cent trading range – 72.50 to 75.50 cents – remains in play, but pressure is building for cotton prices to move higher. Maybe Jon Bon Jovi’s new line of denim jeans will help.

Market Analysis

Market Remains Strong as The Limited Bows Out

January 20, 2017

The market consolidated gains of the past few weeks, just as The Limited – a primary supplier of cotton to women – closes its doors.

Market Analysis

Shurley on Cotton: Opportunities in Improved Market

January 16, 2017

March futures have improved, and January is looking like a good month. The big question and the uncertainty is whether or not this will last.

Market Analysis

Market Holds in Face of USDA Report Adjustments

January 16, 2017

From now likely into the mid-March trading period, the very bullish call sales ratio will continue to carry the ball for the bulls.

Market Analysis

Bull Market Pushes Prices to Five Month High

January 9, 2017

Prices reached a five-month high, as cotton demand flexed its muscles and pushed the market up.