What is in this article?:
- Weather and China will be key influences on cottonâ€™s future
- China's cotton situation
- Funds reentering market
Long range weather patterns are suggesting that West Texas and the Southwest will remain dry, says O. A. Cleveland, Jr., and “some of that drought is going to ease over into the Delta area and move on eastward across the entire cotton belt,” which will have an influence on the market in months ahead. China's rebuilding of its strategic cotton reserve and reduced cotton plantings worldwide will also play a role in where the market goes, says the Mississippi State University Extension economist emeritus.
China's cotton situation
“Over the last 18 months, world carryover has increased about 18 million bales — which is about the same amount the Chinese took from their strategic reserve about two years ago to fulfill their textile production needs (that’s one reason they increased their planted acres so much last year).
“We’re also starting to see are reports out of China suggesting that their current crop may be about 3 million bales lower than USDA’s figure. But it’s hard to judge this, because a couple of times in the past we’ve had similar information out of China and it turned out that USDA’s numbers were actually better.”
If the China figure is accurate, however, Cleveland says, “That may be the reason the market is now starting to move back up just a bit.”
Pakistan, India, Brazil will all reduce plantings this coming season, he says, and at the same time, “We’re seeing stronger infrastructure with respect to East Asian textile mills — Vietnam, Cambodia, Laos, Myanmar, some of these countries are starting to rival China in textile production, and are beginning to take business away from China.
“China initially got all the textile business because of their low labor costs, but as the country has developed more, the textile sector has looked to other countries with lower labor costs, and some of the business is tending to move away.
“Even so, with China’s immense population, there’s not much possibility that we’re going to see a drastic change in their mill consumption.”
China maintains a strategic reserve of cotton, Cleveland says, “simply because they need it to keep their textile mills operating. Eighteen to 24 months ago, they used basically all the cotton in that reserve, and they’ve been buying cotton to rebuild those supplies. They’ll put it in warehouses and keep it maybe six years before they ever spin it.
“They’ve already bought about 12 million bales, and will probably buy another 6 million to 8 million bales during the coming months — over and above what they need for spinning in their textile mills — in order to rebuild their reserves.”
When the market dropped below $1, Cleveland says, “China began to buy massive amounts of cotton, and they’ve continued to buy at those price levels. On Jan. 9 and Jan. 12, March cotton went below 94 cents and with each drop there were massive export sales; the Chinese bought tons of cotton on both of those drops.
“I think all this is telling us there is terrific demand out there — we’ve just got to try and find a price that will move the cotton, and it looks like 94 cents may be the point at which mills will jump all over it.
“I think we have to believe that there’s strong demand for cotton; it just hasn’t been there at $1.05 or $1.08. But now that we’ve seen all this movement below 94 cents, I think the mills will be a little friendlier toward coming back into the market. We saw that in the export sales report last week, when the mills were buying cotton for immediate delivery.”
Earlier in the year, Cleveland says, “We thought China would buy about 16 million bales of cotton, but they’ve already bought about 14 million to 15 million, and they’ve just opened a quota for another 3 million.
“So, the signals to the market indicate that there will be at least 18 million bales sold to China, and some think the figure could go as high as 25 million. That’s a little high, admittedly, but we can make an argument for it, and that would send the market somewhat higher.”