Cotton: World Markets and Trade. Jul 2014 July 17, 2014
Yarn Exporters Impacted by China’s Policy Change
China’s price support program, introduced in 2011/12, raised internal market prices for cotton substantially above world prices. Consequently, yarn, fabric, textiles, and apparel made from domestic cotton became less competitive compared to similar products containing man-made fibers or cotton from outside of China. As a result, mill use in China has fallen, while outside of China it has grown.
Much of the decline in Chinese mill use can be attributed to larger imports of lower priced cotton yarn, which has supported mill use around the world. That stronger yarn import demand in China is roughly equal to the total growth in mill use outside of China. The major beneficiaries of this increased demand have been India, Pakistan, and Vietnam, but even the United Sates has seen yarn exports to China more than double, albeit from a very small base.
Moving into 2014/15, as China shifts from a price support to a target price system, the full effect on yarn imports is not yet clear. For the first time since the introduction of the price support program, USDA forecasts mill use in China growing faster than the rest of the world. In Vietnam, where mill use nearly doubled since China implemented the price support policy, USDA is forecasting a slight decline.
For 2014/15, world ending stocks are forecast higher because of larger production, smaller use, and a larger carry-in. Total trade is largely unchanged. U.S. production and use are up, but ending stocks are higher despite higher exports. The forecast for the season average U.S. farm price range is lowered 2 cents to 68 cents/pound.
The U.S. spot price and the A-Index have continued to weaken due to improving crop prospects in the United States and concerns that China’s policy will lower new crop prices.
2014/15 TRADE OUTLOOK
• United States is raised 500,000 bales to 10.2 million on a larger crop.
• Australia is raised 200,000 bales to 3.3 million on larger carry-in.
• Brazil is raised 100,000 bales to 3.4 million on larger carry-in.
• India is lowered 200,000 bales to 5.5 million on a smaller crop.
• Burkina Faso is lowered 100,000 bales to 1.0 million on stronger export competition.
• Egypt is lowered 100,000 bales to 225,000 on a larger crop.
• Pakistan is down 300,000 bales to 2.2 million on lower demand.
• Turkey is up 100,000 bales to 3.9 million on greater global availability.
• India is raised 100,000 bales to 1.1 million on a larger crop