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China cotton buying reflects idea of lower sowings

China cotton buying reflects idea of lower sowings Source: www.agrimoney.com
Date: 30-11-2011
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China’s cotton stockpiling, which has prompted a shopping spree for US supplies, has been spurred by expectations for reduced domestic sowings next year, which looks like being a weaker season for seedings worldwide.

“The urgency for restocking is predicated on the concern of reduced planting acreage next year,” a China-based bank source said.

The sowings decline is expected to affect in particular secondary growing areas, with plantings in Xinjiang, which produces some 40% of China’s cotton crop, viewed likely to remain stable.

The growing reliance on Xinjiang comes with an extra supply downside in that there is only one rail line to shift cotton from the province to Chinese textile mills more than 2,500 miles away, who are the world’s top users of the fibre.

Global picture 

The reluctance to sow cotton looks set to be reflected in many producing countries next year, with Morgan Stanley separately forecasting harvested area “flat” year on year at 35.6m hectares.

And the bank would have forecast a “more pronounced year-on-year decline” were it not for the drought in the south of the US which has this year meant massive areas, largely in Texas, being abandoned.

While US farmers sowed, at 14.7m acres, one-third more cotton, the amount making it through to harvest is estimated at US officials at only 9.8m acres (4.0m hectares), a drop of 8.4% year on year.

‘Lower cotton prices’

Morgan Stanley said its sowing outlook reflected the drop in cotton prices, which on New York’s futures market set a record high, for a spot contract, of 227 cents a pound in March.

New York’s near-term December lot stood at 92.40 cents a pound in late deals on Wednesday, down 0.3% on the day.

“We seek lower cotton prices limiting planted acreage in 2012-13,” the bank said.

The price has fallen in part thanks to signs of sagging demand, as weakened economic growth prospects limit consumers’ appetite for clothing.

Mills close early

There were now reports of increasing numbers of textile factories closing early for China’s new year, in late January, thanks to a “lack of export orders and low, even negative, margin”, the China bank source said.

Domestic textile sales in China, which have for years been growing at double-digit rates, rose 4.6% by volume in the first eight months of 2011.

In the US, underlying clothing sales growth has fallen to its lowest level since February last year, with UK apparel sales dropping since June at an annual pace of 1%.

Nonetheless, China has been buying US cotton this month to rebuild state stockpiles sapped by sales aimed at helping keep domestic prices in check, and mills in business.

China refrained for two seasons, of bouyant cotton prices, from buying domestic crop, but has brought well over 500,000 tonnes of the fibre from domestic farmers this time.

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