Biggest Factor Driving Cotton Prices: Government Actions

By Jim.Robinson|May 24, 2012

As the biggest power broker in the global cotton industry, China always has the attention and interest of stakeholders all over the world. The spotlight was even more tightly focused on China last week, during the 2012 China Cotton Industry Development Summit Forum, held in Chengdu on May 17-18.

China has long been the world’s top producer, importer and consumer of cotton, so what happens there truly shapes industry trends. But China’s impact is even greater this year due to the massive purchases made by its National Reserve in recent months. Those purchases helped support an international price that would have plummeted otherwise, and by July 2012, China will hold a full quarter (18.1 million bales) of the world’s cotton stocks. That figure represents a 50% increase over the country’s total from last year.

During his presentation in Chengdu on the 2012 global cotton market outlook, Anthony Tancredi (president, Allenberg Cotton Co.) said no single factor will have a greater impact on cotton prices in the near future than the actions of the Chinese and Indian governments. It was a bit of a shock to hear that government intervention is as influential, if not more so, than the most basic tenet of economics – the law of supply and demand. But it stands to reason that the supply of cotton in global stocks is a much different thing than the available supply of cotton in global stocks.

Unfortunately, few things are less predictable than human behavior, and one of them – the weather – can also have a profound impact on the available supply of cotton in the world, as growers in places like Pakistan and West Texas know all too well.

There’s nothing we can do about the weather, but Cotton International will continue to monitor developments in both China and India on a daily basis, and we’ll take a much more thorough look at each market in the quarterly Country Reports scheduled for the third and fourth quarters, respectively. You won’t want to miss them.