What is in this article?:
- Winning the blend in China is big for U.S. cotton growers
- Worldwide cotton demand problem
- Chinese can manipulate prices
- Speaking at the recent Southern Cotton Growers and Southeastern Cotton Ginners annual meeting, Joe Nicosia said a big part of the loss of cotton use in China comes from changes in the blend rates used by Chinese mills.
- A few years back Chinese blends were more typically in a 60:40 ratio of cotton to polyester. Today the ratio is moving toward 60:40 in favor of polyester.
Chinese can manipulate prices
“If the Chinese want to manipulate world cotton prices they can do so, because they own more cotton than the world has in available free stocks.
“Driving the price of cotton down and putting growers around the world out of business would be totally counter-productive to China’s textile industry, and that’s not what they are going to do with this surplus,” Nicosia says.
Last year other countries exported about 13.2 million bales of cotton, down 4-5 million bales from the previous year.
Countries like Australia, Brazil and India compete with the U.S. for world markets. “If you could take China out of the equation, last year the world produced 21 million bales more cotton than we needed, pushing the world surplus to 82 million bales — by far a record. This year cotton producers worldwide are expected to grow another 14.5 million bales than the world needs.”
Last year China was projected to buy 14 million bales of cotton and they bought 24 million bales. This year China is expected to allow textile mills to buy foreign grown cotton — a good thing for U.S. growers, but not enough to offset the worldwide surplus of cotton.
“There is no way around it, the Chinese surplus of cotton, estimated to reach 48 million bales by March, is like an anchor around cotton growers necks. Despite the world surplus, it feels like supplies are tight,” Nicosia contends.
“In the U.S., cotton supplies feel tight because they are tight. Free stocks of cotton, which is the amount of cotton worldwide that any buyer can buy at any time, is down around 46 million bales. The problem is all those bales in China’s reserve system, in India’s market support program and the U.S. loan program,” he adds.
“Based on a world surplus of 82 million bales and growing, the price of cotton should be in the 60-65 cents a pound range. Based on global free stocks, the prices should be much higher, maybe closer to a dollar a pounds — that’s what we’ve seen in the past with stocks at this level.”
For U.S. cotton growers in 2013, Nicosia says growers in the Southeast for sure should reconsider cutting cotton acres.
“Based on our cost to return figures, cotton is still a better bet than corn or soybeans in the Southeast. In the Delta, maybe not so much, and in the Southwest it’s all dependent on availability and cost of water.
“Cotton growers should closely watch spikes in cotton prices based on fluctuations in free stock supplies — and there will likely be several of these before new cotton is available.
“Sell when these supplies dip and when prices spike upward. These price ups and downs won’t last long, so growers will need to pay close attention to market conditions to get the most value from their 2013 crop,” he says.