China has announced a new cotton price target to help stabilize supply of the commodity.
The target price, 18,600 yuan per ton (or roughly 122 cents per pound), is unchanged from 2016 and will remain in effect through the 2019 planting season, according to an International Cotton Advisory Committee (ICAC) report.
“In order to maintain a stable supply of cotton, the subsidy will also only apply to output less than 85 percent of the average annual production grown from 2012-2014 (around 7 million tons). The level of subsidy for extra-long staple cotton will remain unchanged at 1.3 times the price of upland cotton.”
For the 2017/18 season, world cotton production is projected up 1 percent to 23.1 million tons thanks to high prices in the current season encouraging farmers to plant. The average yield, however, will drop 2 percent to 761 kilograms per hectare. India’s production will tick up 2 percent to 5.9 million tons, and with China’s cotton area expanding by 3 percent after five straight seasons of contraction, the country’s cotton production could reach 4.8 million tons. Farmers in the U.S. will likely plant more in the coming season with yields high and prices firm, but production will likely still be flat at 3.8 million tons.
World cotton mill use will also remain flat at 24.1 million tons, owed to weak global economic growth and competition from polyester, ICAC said.
“Global consumption may recover by 1 percent in 2017/18 to 24.4 million tons as cotton prices decrease, and growth in the global economy is expected to be much stronger in 2017 and 2018,” according to ICAC.
China’s mill use will inch up 2 percent to 7.6 million tons this season and climb another 1 percent for the coming season.
“The gap between China’s domestic cotton prices and international cotton prices has decreased, making yarn imports less attractive than in recent seasons,” ICAC said. “In addition, mill use in Xinjiang has expanded, and the proximity to the higher quality cotton grown in this region offers cost advantages over yarn imports.”
China has already imported more than 600,000 tons of cotton for the first seven months of the season, 7 percent more than the same time last season. But it’s Vietnam that’s gaining the greatest ground in terms of cotton imports. Likely to support its increased production, Vietnam’s cotton imports are expected to grow 17 percent to 1.17 million tons this season.
Sales from China’s cotton reserve continued in March, and the volume of what was sold from the stash totaled 450,000 tons.
“If the level sales that occurred last month continue, a similar volume of cotton may be sold this year as well, bringing the total volume held by the government to around 6 million tons at the end of August 2017,” ICAC said. By the end of the current season, China’s stocks are expected to fall 17 percent to 9.3 million tons. World ending stocks will fall 7 percent to 19.1 million tons.