Annual Preview: Seeking Sustainable Development for China Cotton

By Gao Fang|December 29, 2011

Over the past three years, an increasing flow of financial capital has targeted the bulk commodities market. As an important agricultural product, cotton faced pricing pressures from increases in market liquidity.

In 2008, China’s textile exports were hindered by the global financial crisis. Domestic cotton prices dropped to 72 U.S. cents/lb. However, within the following two years up to 2010, the price dramatically climbed above $2.16/lb. In 2011, the Chinese government endeavored to buy cotton for reserves to prevent big price decrease, but the price has still dropped to $1/37/lb. Such large fluctuations in cotton prices are historically rare.

Did the Chinese cotton or textile industries go wrong? My belief is that neither was responsible and that the entire supply and demand environment in China did not greatly change. The cotton supply still could not keep up with consumption levels. The key factor in the market fluctuations was monetary policy. Confronted with a complicated and volatile economic situation, governments chose to use macro-economic monetary policy more frequently. These policies attracted speculation from investors in bulk agricultural commodities, including cotton. The prices were not only dependent on market demand, but also were manipulated by financial speculation.

You can read the rest of this article and dozens of others when the 2012 Cotton International Annual Edition is published. Be sure to watch for it in your mailbox in January 2012!