Low World Cotton Prices Incite Government Intervention

Low World Cotton Prices Incite Government Intervention

Date Posted: 17 Nov, 2014
In 2013/14, the Cotlook A Index averaged 91 cents/lb. well above the long-term average of around 70 cents/lb. However, prices have since plummeted, and the Secretariat forecasts the world average price to be around 74 cents/ lb. this season. Given low prices and high production costs, many governments of large cotton-producing countries are taking measures to help growers. China recently announced that it would provide a cotton subsidy of 2,000 yuan/ton to growers in nine inland provinces in 2014. India has a minimum support price system that did not go into effect in the last few seasons due to high prices, but prices have fallen enough to trigger the minimum support price this season. In October, the Pakistani government announced a cotton support price of Rs 3,000 per 40 kilograms. The Trading Corporation of Pakistan (TCP), which has not purchased cotton since 2005/06, will buy about one million bales of lint this month at the announced minimum support price.
 
World cotton production is forecast at 26.3 million tons for 2014/15, an output similar to that of last year. While harvesting in India will likely continue into early next year, production is expected to remain stable at 6.8 million tons, as the less favorable monsoon weather lowered the average yield to around 553 kg/ha and offset a 4% gain in area. China’s production is forecast down 7% to 6.5 million tons due to a smaller area sown with cotton. Rains at planting alleviated the drought situation in the United States, allowing production to recover to 3.6 million tons. Despite the flooding in Pakistan last month, cotton production is projected up 1% to 2.1 million tons with an average yield of 750 kg/ha.
 
Despite low prices, many mills are waiting to see if prices drop further before making large purchases, but world cotton consumption is likely to pick up next year reaching 24.4 million tons by the end of 2014/15. China’s total consumption is expected to be just under eight million tons, and India to be around 5.3 million tons. Consumption in Pakistan may grow 2% to 2.3 million tons, but will depend on sufficient and stable electricity supply in the regions with the highest concentration of spinning mills. Though still recovering from the aftermath of the Rana Plaza incident, Bangladesh consumption is projected at 954,000 tons while Vietnam is expected to consume nearly 700,000 tons of cotton, up 9% from 2013/14.
 
World trade is projected to fall 11% and reach 7.9 million tons. To promote consumption of domestically grown cotton, the Chinese government is limiting the volume of cotton imports, which forecast down 36% to 2 million tons in 2014/15. However, imports elsewhere are expected to grow 8% to 5.9 million tons due to gains in South and Southeast Asia where many consuming countries produce small quantities of cotton. 


WORLD COTTON SUPPLY AND DISTRIBUTION
        
 2012/132013/142014/15 2012/132013/142014/15
     Changes from previous month
 Million Tons Million Tons
        
Production26.6626.2426.27 0.180.260.03
Consumption23.5823.4624.45 0.01-0.030.03
Imports9.668.767.86 -0.18-0.25-0.18
Exports10.178.867.86 0.08-0.13-0.18
Ending Stocks17.1019.7721.60 -0.040.130.13
        
Cotlook A Index*889174*    

*The price projection for 2014/15 is based on the ending stocks/mill use ratio in the world-less-China in 2012/13 (estimate), in 2013/14 (estimate) and 2014/15 (projection), on the ratio of Chinese net imports to world imports in 2013/14 (estimate) and 2014/15 (projection). The price projection is the mid-point of the 95% confidence interval: 64 cts/lb to 87 cts/lb.