Macquarie, analysts in the cotton sector, have suggested that cotton prices could still rally, following the Chinese government’s decision to buy cotton from domestic producers at prices that are “nearly double” the current value of the market.
This decision, by supporting Chinese import demand (which doubled in 2012–13), is expected to avert any collapse in the price of cotton resulting from current record world stock levels. This effectively continues the trend in the impact of Chinese policies that has been evident over the past 2 years. However, next season this Chinese policy is likely to lead to a “further increase in the country's already huge inventories”, possibly only deferring the prospects of a price collapse.
Outside China, the US cotton market is reportedly “tightening”, with sowings of cotton down, and both yields and quality affected by adverse weather. The analysts at Macquarie expect cotton prices to remain in the range of “the mid 80 cents a pound”, with the potential to rise to 90 US cents/lb if there are production scares in India and the US. Indeed, it was thought that prices in 2014 could rally further as a result of “high mill demand”. This situation has seen cotton futures emerge as “the second best performer among major US traded crop futures” in 2013, behind cocoa. This could, however, change in 2014–15, depending on developments in Chinese production and policy.
For many years, US policies – and to a lesser extent EU policies – were a focus of concern for ACP cotton producers, and the ACP group was vocal in its support of the C4 group of African cotton-producing countries, calling for an early elimination of US and EU cotton support measures. However, the situation is now greatly complicated by the critical influence that Chinese policy is having on global cotton prices. By August 2013, global cotton prices were already 60% below their March 2011 peak of 229.67 c/lb.
An ICTSD/ICAC information note published in May 2013 highlighted how China, rather than the USA, has been the largest provider of cotton subsidies since 2009/10 – Chinese support for the cotton sector increased more than fivefold between 2007/08 and 2012/13. As a result of the operation of China’s minimum support price policy and import quotas, cotton prices in China have been kept “well above international cotton prices”. This in turn has increased import demand from the Chinese textile industry, thereby supporting world market cotton prices.
The ICTSD analysis maintained that if stocks held by the Chinese government had not increased to such an extent, stocks in the rest of the world “might have accumulated faster… and international cotton prices might have declined further”.
While the current Chinese policy is supportive of world market prices, in the long term the policy is unsustainable (see Agritrade article ‘Changes in Chinese cotton policy imminent?’, 15 July 2013). The timing and nature of any Chinese policy change thus overhangs the global cotton market.
Against this background, there would appear to be both considerable need and scope for an ACP political initiative towards China on cotton issues. Such an initiative could seek to initiate a dialogue with the Chinese authorities to ensure that future policy change is managed in ways that minimise the impact on global cotton prices, on which ACP cotton exporters depend. (For some concrete suggestions in this regard see Agritrade article ‘ Priority areas for cotton lobbying identified’, 29 July 2013.)