China needs to triple its cotton imports.
With government stocks depleting, China needs to import more cotton to sustain its mills’ consumption. Where would that cotton come from?
Jon Devine, senior economist and a 10-year veteran with Cotton Incorporated, recently presented a nice picture of the global cotton scenario.
The current government stocks in China have fallen considerably from 2013/14 to about 9 million bales (480 lbs. per bale) at the end of 2018/19. This puts the deficit in China to be at 15 million bales, necessitating more imports. The lingering trade war between China and the United States is affecting the supply chain and more importantly, creating uncertainty in the global economy. Chinese cotton production gap is one-third of its mill use, stated Devine.
As U.S. harvest season continues, higher production is expected due to favorable weather in the High Plains of Texas, with less drought compared to last year during the growing season. Upland cotton production in the High Plains is projected to be above 4.5 million bales. USDA estimates that the total cotton production in the U.S. will be 22 million bales, with consumption of only 3 million bales.
Last year, while China has increased its cotton import, the share of United States’ cotton export has dropped. On a year-on-year basis, other countries like Brazil, Australia and India have fared well in exporting to China. These scenarios dictate the need for a speedy resolution to the ongoing trade war.
To my question on the takeover of the Chinese market by other exporting nations in the absence of a trade deal soon, Devine speculated, “This is a central unknown, because we do not know where the details will end up. A resolution, if reached, should support U.S. exports. If a resolution is not reached, demand for non-U.S. cotton will be supported.”
For the marketing year that ended in July, Devine added, “Even with the tariffs, the U.S. was still the third-largest source of cotton for China. China was the second-largest destination for U.S. exports (only behind Vietnam).”
While China is a key player, the textile industry is slowly moving away from China, as Vietnam and Bangladesh are capturing the export market.
The trade war, if prolonged, may bring about a shift in the cotton market. The United States needs markets such as Indonesia, Pakistan and India. Will India be a decent market for the United States’ cotton? The current Minimum Support Price (MSP) for cotton in India is putting stress on the textile mills that should create a market for quality cotton from the United States.
“The MSP for the Indian cotton is much higher than the global cotton prices, making the input cost higher for the spinners who are in the export market,” stated Gurudas Aras, director, Textile Engineering Group of A.T.E. Enterprises Pvt. Ltd, in an e-mail communication.
Looking ahead, Devine agreed that the trade war situation and the overall global economy will be the determining factors for cotton trade. Will there be more cotton acreage in 2020? It’s hard to tell with cotton prices being low at this point of time.
Another interesting aspect to watch is the growth of textile manufacturing in Ethiopia – another market to observe keenly.