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Bearish cotton: china buying helps sustain prices

Bearish cotton: china buying helps sustain prices Source: www.commodityonline.com
Date: 03-12-2013
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With regard to its import policy, in the past two seasons, China imported much of the surplus stock on the world market, allowing prices to remain relatively high. This season its imports are expected to decrease 40% from last season to 3.1 million tons.

WASHINGTON/USA (Commodity Online): China has started selling from its cotton stockpiles from November 28 at 18,000 Yuan per ton or 133 cents/pound but it is not a recipe for disaster as China's purchases continue to outbeat sales.

China's cotton reserves have surpassed 10.1 mn tons in 2013/14 and it has a huge impact on global prices of cotton, according to International Cotton Advisory Committee (ICAC). World production of cotton is expected to outpace world consumption for the fourth consecutive season in 2013/14, ICAC said. World produciton is forecasted at 25.6 mn tons, down by 1.2 mn tons from last weason while consumption is forecast at 23.8 mn tons up 2% from last season with an upward revision of 85000 tons in India last month.

With regard to its import policy, in the past two seasons, China imported much of the surplus stock on the world market, allowing prices to remain relatively high. This season its imports are expected to decrease 40% from last season to 3.1 million tons. The sales price of cotton from China’s reserve is significantly higher than the import price with a 40% tariff. Thus, unless international prices rise above the mid-90s and imports would be lower than expected, China’s imports are projected to remain around 3.1 million tons for the season.

Although there is no planned volume of sales from the reserves, the ICAC Secretariat is assuming that China National Cotton Reserves Corporation (CNCRC) will sell roughly 2-3 million tons so that China’s ending stock for the season will be around 11-12 million tons.

In April 2013, the Secretariat’s projected price for the current season was 118 cents per pound. Since then ICAC’s projected price has plummeted, and the current midpoint of the forecast range is 88.

Contributing writer Seshadri Ramkumar, Professor at Texas Tech University, USA reports:

The global demand for cotton is good, said Wallace Darneille, President and CEO of Lubbock based Plains Cotton Cooperative Association (PCCA).
Speaking on Monday at the 2013 Cotton Achievement Award luncheon in Lubbock, USA Wallace said that the stockpiling of cotton in China has been going on for a while. “It hasn’t been a recipe for disaster”, said Darneille.

Although China has started selling its reserves since Thanksgiving Day, Nov 28th, according to Mr. Darneille, China is buying more than selling. Chinese cotton sold now is older crop and of low quality. According to him, China needs to have a measured exit from stockpiling.

Cottons’ demand is good and the price continues to be decent. Speaking to the scribe on the sidelines of the event, Mr. Darneille, who has firsthand insight on cotton market stated China needs to sell its reserves because of its own loan policy.

In his speech, PCCA president emphasized the importance of innovation in the cotton industry which makes the US cotton farmer to produce consistent quality cotton year after year.

This year, the Cotton Grower Achievement Award given by the Cotton Grower magazine went to Floydada, TX based producer Mr. Eddie Smith, who is the 44th recipient of this yearly award.
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