May 7, 2012

 

China's cotton supply to counter price hike impact

 

 

As a precaution against a possibly huge cotton land reduction this year and ensuing price fluctuations, China has stocked up its biggest cotton ever in the past two decades, according to authorities.

 

As much as 3.13 million tonnes of domestic cotton have been accumulated over the seven-month period that ended on March 31, according to the China Cotton Association.

 

The stockpile this year has been the largest since 1984, said Gao Fang, executive vice-president of the association. It was accumulated to prevent possible price rises at a time when the country's cotton acreage is expected to decrease 16.7% on-year.

 

Some Chinese cotton traders also fear that cotton prices will increase in the global market later this year. That could be fuelled by price inflation in the US, even though new supplies of the crop are expected to come from Africa and other developing economies.

 

The likely decrease in acreage could result in China harvesting 1.23 million fewer tonnes of cotton this year, meaning amount of cotton it produces would be around 6.15 million tonnes this year, compared with 7.38 million tonnes last year.

 

The global acreage for cotton is expected to decline by 9% in the 2012-13 season after jumping to record highs in the 2010-11 season, according to industry experts.

 

In recent years, China has consumed about 10 million tonnes of cotton on average annually. More than 60% of that has come from domestic cotton farms and the rest from imports. The massive Chinese textile industry uses up half of that total in producing garments for export.

 

The country saw a wild rise in cotton prices in 2009, when its cotton acreage declined by 13% from the previous year. The domestic spot price for the commodity surged to a historic high of RMB40,000 (US$6,250) a tonne shortly afterward, causing the global cotton price to surge to a new high in early 2010.

 

In 2011, though, the price tumbled. China National Radio reported that Liu Hongju, a cotton farmer in Shandong province, has seen the selling price of her harvest decrease by more than 40% from what it had been in 2010. "We've been busy for nothing this year," she was quoted as saying.

 

Grain farmers, in contrast, can count on commanding better prices for their products and receiving greater incentives from the government, according to a China Cotton Association survey of farmers' planting intentions in February.

 

In Liu's hometown, Dezhou, cotton acreage has been reduced by half, from 200,000 hectares a few years ago to 100,000 hectares in 2011, according to Ma Junkai, from the local cotton association.

 

Ma said 2012 would see the regional cotton acreage decrease by a further 20-30%.

 

Of China's three chief areas where cotton is grown, the Yellow River valley, including Shandong province, is expected to see the largest reduction in cotton acreage. The survey predicted it will decrease by 27% on-year.

 

The acreage in the Yangtze River valley is meanwhile expected to decrease by 13% on-year, and that in Northwestern China, primarily in the Xinjiang Uygur autonomous region, by 7.3%.