The Chinese government policy of temporary purchase and storage of cotton is being globally misinterpreted as an attempt to control the world market, according to the China Cotton Association (CCA).
Although China is the number one cotton consumer and producer, the government says it is simply trying to protect its farmers’ interest to make sure there is sufficient output.
Although this storage policy was meant to be temporary, due to the current recession, the cotton reserve policy has had an unexpectedly long duration. The plan was originally launched as a contingency aimed at solving periodic oversupply.
In 2012, during a market depression, the Chinese had a bumper crop. Because of this, the reserves reached 5.83 million tons by January 2013.
In 2012, cotton prices fell by 20% compared to the 42% fall witnessed in 2011. The CCA says this is an example of some of the positives the cotton policy provides. The cotton policy also ensures that growers receive a higher price for their produce.
USDA estimates that China’s total imports will reach 14 million bales of cotton in the current marketing year. This prediction represents a 12% increase from its forecast in January.
It has also been reported that Chinese mills are still importing cotton despite the massive stockpile, as mills can get better cotton from abroad for roughly the same price.
A fall in cotton auctions in China runs parallel with a boom in U.S. cotton export deals. Since November, U.S. exporters have made deals to sell 3.8 million bales, with 35% of the total to go to China. In 2012, U.S. cotton exports to China climbed 60% from the previous year to 6.9 million bales
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