Cotton: World Markets and Trade. Oct 2014 Oct. 14, 2014
Falling Prices Herald Return of Support Policies
For the past 3 years, China’s cotton support program has been the dominant government policy supporting global cotton prices. However, China’s shift from a price support to an income support policy has caused an abrupt fall in world prices. The A-index dipped below 70 cents in early October, a level not seen in 5 years. This has triggered a variety of responses by other countries designed to support cotton producers. Some of the policy responses are new actions in response to lower prices, while others are the result of existing policies which had been dormant during the period of relatively higher prices.
With stocks outside of China expected to increase 16 percent and global import demand falling 15 percent, these policies could have significant impacts on which countries will end up holding higher stocks.
Countries with policies that support prices above the world level could reduce their export competitiveness for both cotton and textiles, especially yarn and fabric.
• India: World prices are now below the Minimum Support Price (MSP) level. If there is significant purchasing and storage of cotton under the MSP, domestic prices could rise above the world level resulting in higher stocks.
• Pakistan: The government has authorized the Trading Corporation of Pakistan to purchase cotton in an effort to support local prices. If effective, this could reduce exports of yarn, especially to China.
• West Africa: Prices have fallen below the minimum producer prices set by various governments. If there is reluctance to incur losses under these programs, exports could be restricted.
Countries that provide direct support to producers, which do not affect prices, may see effects on the timing of exports.
• United States: Falling prices have activated the marketing loan program which is intended to encourage sales of cotton at market clearing levels, and thus could be helpful in maintaining U.S. export market share.
• Brazil: The government has initiated payments to producers under the Prêmio Equalizador Pago ao Produtor ( PEPRO) program which could encourage producers to sell sooner.
For 2014/15, world ending stocks are forecast higher due to a larger carryin, as increases in consumption nearly offset higher production. World trade is lower. U.S. production is down; with unchanged consumption and exports, ending stocks are down. The forecast for the season average U.S. farm price is lowered 4 cents to 60 cents/pound.
News of tightening of the import situation in China has continued to move the A-Index and spot prices down to their lowest levels in 5 years.
2014/15 TRADE OUTLOOK
• India is lowered 700,000 bales to 5.0 million on lower global import demand.
• Brazil is down 300,000 bales to 3.4 million on a smaller crop.
• Australia is up 200,000 bales to 3.2 million on expected strong new crop sales.
• China is down 1.0 million bales to 7.0 million on policy announcements limiting import access.
• Indonesia is raised 225,000 bales to 3.1 million on a historical adjustment to imports and consumption.
• Vietnam is up 200,000 bales to 3.6 million on higher consumption.
• Pakistan is down 100,000 bales to1.5 million on a larger crop