Cotton: World Markets and Trade Nov. 10, 2012
As the world’s largest cotton producer, consumer, and importer, China’s domestic policies not only impact its internal market, but also influence global markets and prices. In 2011/12, world stocks rose to record levels, and prices were in free-fall. China implemented a state reserve purchase program which stabilized domestic prices, drove up import demand, and thereby supported world prices at about $1.00/lb. For 2012/13, China announced an even higher support price. This helped maintain domestic production while sharply reducing consumption, which further added to world stocks.
Rising world stocks would normally be expected to pressure world prices. However, prices have only declined slightly asChina’s support program absorbs surplus production and withholds it from the market, resulting in demand for imports. Although duty-paid import prices are now comparable to domestic cotton prices, future management of the reserve stocks creates uncertainty in the market and could change the current price relationship.
Global cotton stocks for 2012/13 are raised on marginal increases in production and a slight decline in consumption, while trade is virtually unchanged. U.S. production and ending stocks are up as exports remain unchanged. The season average farm price remains at 68 cents/pound.
The U.S. spot price and the A-Index remained relatively flat pending further developments in China’s reserve policy.
2012/13 TRADE OUTLOOK
• Australia fell 100,000 bales to 4.3 million due to greater competition.
• Malaysia is up 100,000 bales to 750,000 on higher levels of transit trade.
• Uzbekistan is increased 100,000 bales to 2.7 million on stronger production.
Trade Changes 2011/12
• Malaysia is raised 110,000 bales to 1.0 million on increased transit trade.
• Malaysia is revised up 108,000 bales to 1.1 million on greater transit trade.