Supply and Demand Workshop Asks: Who, Where, When, and How Much?
September 18, 2011 Anyone who can shed some light on where supply and demand are going in the near future would be very popular in the cotton industry today, and although no one can answer those questions definitively, the China National Cotton Information Center (CNCIC) is moving in that direction.
On June 21-22, CNCIC hosted a workshop entitled, “Estimating Cotton Supply and Use in the 21st Century” in Beijing. The purpose of the workshop was to discuss best practices in estimating cotton supply and use, gathering and evaluating data, coordinating different sets of data between agencies in the largest producing countries, and improving access to data. About 130 participants from five countries were in attendance (China, India, the United States, Pakistan and Uganda). Five sessions were held during the workshop.
Outlook for World Cotton Market
In his introductory remarks, Gong Wenlong, chairman and CEO of the CNCIC, emphasized the need for better cotton statistics. Zhu Baoliang, chief economist with the Economic Forecast Department of China’s State Information Center, presented an outlook for China and world economy, highlighting possible policies that China could adopt to avoid a “hard landing” a few years from now. Gong Wenlong then described how the need for a nationwide data collection system emerged after the gradual liberalization of the Chinese cotton sector, as well as how the National Cotton Market Monitoring System (NCMMS) had been developed by the CNCIC as an information monitoring, publishing and early-warning system for the cotton sector. That network has operated since 2005 and includes 6,000 monitoring growers and 200 stations that collect raw data on production, consumption and stocks.
Estimating Cotton Production
Huang Jiacai, director of the Rural Production Statistics Division in the Department of Rural Surveys at the National Bureau of Statistics in China, presented the recent trends in cotton area and production in China. Shri B.K. Mishra, chairman-cum-managing director of the Cotton Corporation of India, described the methodologies used to estimate cotton production in India. In particular, he explained how various government agencies and interprofessional organizations estimate cotton production and how these estimates are reconciled by consensus within India’s Cotton Advisory Board (CAB), which includes the various stakeholders in the cotton industry. Atif Dada, chairman of the Karachi Cotton Association, explained the two main channels by which the cotton crop size is estimated in Pakistan: by the government and by the Pakistan Cotton Growers Association (PCGA). PCGA estimates cotton production through the regular reporting of cotton arrivals data at gins, which report the arrivals data on a voluntary basis. The resulting production estimate is fairly accurate and accepted by all stakeholders in the industry. Carol Skelly, cotton estimates chairman at the World Agricultural Outlook Board in the U.S. Department of Agriculture (USDA), described how USDA uses various methodologies – area sampling, farmers’ surveys, field measurements and ginning reports – to estimate cotton area, yields and production at different stages during the season.
Estimating Cotton Use
Feng Megxiao, chief information officer at CNCIC, explained that the CNCIC uses various kinds of data to estimate cotton mill use in China, including sales and trade of textile products, inventory and cash flow of textile mills, policy changes that affect the textile industry, price movements for cotton and competing fibers, cotton purchasing intentions and stocks at spinning mills, sales of cotton yarn, stocks, fixed investments in the textile industry, labor availability, and cost of production. A.B. Joshi, textiles commissioner of India, explained that the estimation of cotton mill consumption in India was achieved through monthly reporting by spinning mills to the Office of the Textile Commissioner. These data, as well as the viewpoints of representatives from the textile and cotton sectors, are submitted to the CAB, where a final figure is decided by consensus. Non-mill consumption is decentralized and therefore difficult to estimate. It is currently evaluated infrequently through a national survey. James Johnson, senior cotton analyst at USDA’s Foreign Agricultural Service, explained how the limited number of spinning companies in the United States and their long history of providing information to the government made it relatively easy to measure cotton consumption.
Estimating Cotton Stocks
C.S. Teotia, marketing director at the Cotton Corporation of India, said the government of India recognizes the importance of estimating cotton stocks. He explained that from 1955 to early 2007, ginning and pressing factories (as well as spinning mills) were obligated to provide monthly stock estimates to the Office of the Textile Commissioner. A new bill enabling government agencies to collect stock data from commercial establishments and individuals will be enacted soon. Ginning and pressing factories currently report their stock estimates to the Cotton Association of India. The CAB regularly estimates the national cotton stocks at the national level, at the beginning and end of the season. Cheng Jie, director of Research Department from the CNCIC, explained that stocks are regularly surveyed throughout the season by the NCMMS. He noted that the stocks-to-use ratio in China has declined in recent seasons. USDA’s James Johnson explained that cotton stocks were estimated in the United States two ways: 1) the U.S. Census Bureau annually conducts a survey of stocks as of July 31 in three categories – stocks in cotton warehouses, stocks at mills, and stocks at ports and in transit; and 2) data on stocks in public warehouses is available from the Electronic Warehouse Receipt System. Johnson emphasized the importance of estimating ending stocks to determine market expectations.
Estimating Cotton Prices
Wang Li, deputy director of the Research Center for Rural Economy at the Ministry of Agriculture, presented an analysis of Chinese farmers’ market behavior based on a survey of growers in major producing provinces. She said that farmers’ planting decisions were dependent on the prices of cotton versus competing crops, as well as production costs. She noted that farmers have little access to market information and their primary source of pricing data is their neighbors, merchants, and ginners/spinning mills. Gong Wenlong spoke about the cotton prices paid by textile mills in China, while Ji Guangpo, senior specialist in the Research and Development Department at Zhengzhou Commodity Exchange, described the significant development of cotton futures contracts in China since 2004. Madhavi Das, director at the Ministry of Textiles in India, explained that seed cotton in India is marketed via open auctions held in Agricultural Produce Marketing Committee’s (APMC) market yards. After ginning and pressing, the lint cotton is sold at various terminal markets. Lint cotton prices (by quality) are collected and published on daily basis. Finally, the Northern India Cotton Association publishes prices for northern cotton. Skelly explained that the USDA has two distinct systems for collecting cotton price data in the United States: the Agricultural Marketing Service’s cotton market news reporting, and the National Agricultural Statistics Service’s estimate of the average price received by producers. USDA’s Interagency Cotton Estimates Committee uses the data collected from these two systems, in combination with other prices such as futures prices on the Intercontinental Exchange and the Cotlook A-index, to make monthly forecasts of U.S. cotton prices. Xi Jin, manager of international cooperation at the CNCIC, commented on recent trends in cotton prices in China.
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