A Change in China’s Cotton Policy Is Coming. Just Don’t Ask When.

A Change in China’s Cotton Policy Is Coming. Just Don’t Ask When.

From Cotton Grower Magazine – August/September 2014



Remember the traveling carnivals when you were a kid?

Often – depending on the time of day or other distractions – the operator might leave a ride running longer than usual. If you happened to be riding at the time, that was great. For a while. Then you wanted to get off. But you couldn’t.

You were at the mercy of the operator.

Today’s cotton market feels a bit like riding those old Scramblers and Tilt-A-Whirls. The market has gone up and down and sideways, hovering around the line between profit and loss for so long that the ride has become confusing and exhausting.

Is there an end in sight? Apparently not, as long as China remains the operator.

“China is going to continue to be our problem in this market,” said Anthony Tancredi, head, Cotton Platform for Louis Dreyfus Commodities. “They may be changing what they’re doing or changing what they’d like their impression in the world to be, but they’re not changing the fact that they are firmly imbedded in everything going on in cotton.

“The most important thing for anyone in the market to know is what the Chinese policy is,” he added. “But right now, no one knows – or is sharing – what that policy is.”

Changes Underway

Tancredi says that changes are already underway in China.

Production numbers are going down, as acreage drops in the Central Region of China and the industry consolidates into the Far Western provinces of the country where conditions are more conducive for large scale cotton operations. The government opened up the country’s Reserve to sales through the end of August. And, officials have announced that will not be as active in the import market as before.

Consumption numbers, however, are starting to move in a positive direction.

“Are we heading back to normal – whatever normal for cotton might be?” asked Tancredi. “Is China stepping aside? Are they going off the grid instead of being permanently on? It looks to us like they’re trying to reevaluate what they want to do. And until that’s clear, they’re not going to make any decisions.

“The reality is that no matter how much we want that picture to be clear, it isn’t,” he said. “We’re sitting in a very unclear situation, and it’s very difficult to produce any information that actually says here’s what we can expect. Their policy is supposedly changing. But the question is what do they do next after they stop selling Reserve cotton on August 31?”

According to market sources, the Chinese have promised new published policy rules for several months. Tancredi noted that completion of those rules has been rumored, but the release date remains a mystery. When – or if – those rules materialize, he says it’s going to be a market mover, one way or the other.