In April 2016, the Chinese government announced its plan for auctioning cotton from its reserve, which impacts Chinese cotton consumption and imports. Sales will begin on May 3 and run through the end of August, immediately before the harvest of the 2016/17 domestic crop. Although sales are beginning in May this season, the Chinese government expects that sales in future years will begin in March, when marketing of the current crop usually begins to wane. The daily volume will be capped at 50,000 tons, which is similar to the average daily volume offered for sale during 2014/15. A price floor will be updated weekly and will use the average of domestic spot prices and international physical prices, as reported by the Cotlook A Index. The Chinese government has also indicated that it may purchase a limited quantity of cotton for its reserves depending on actual sales during the previous season, with a focus on high quality cotton.
As China’s cotton imports have fallen, so have world imports. In 2015/16, world cotton imports are expected to decline by 3% to 7.4 million tons and China’s imports by 40% to 1.1 million tons. During this time, imports by Vietnam and Bangladesh have continued to grow along with rising cotton consumption. In 2015/16, Vietnam’s imports are expected to rise by 17% to 1.1 million tons and Bangladesh by 12% to 1.1 million tons. In 2016/17, China’s imports are forecast to decrease by 13% to 940,000 tons as imports are expected to be limited to the volume required by its WTO agreement, with sales from the reserve to supplement extra demand.
Restrictions on cotton imports and the sales from government reserves may cause ending stocks in China to fall by 7% to 12 million tons in 2015/16, which would be the first decrease since 2010/11. Assuming similar conditions, China’s ending stocks may be reduced by 10% to 10.9 million tons by the end of 2016/17. Stocks outside of China are projected to decline by 7% to 8.4 million tons by the end of 2015/16, but are forecast to increase by 2% to 8.7 million tons in 2016/17.
World cotton production is expected to increase slightly limiting the reduction in world ending stocks in 2016/17. After contracting by 9% to 31.2 million hectares in 2015/16, world cotton is projected to expand by 1% to 31.4 million hectares as declining prices for competing crops in 2015/16 encourages farmers to return to cotton in 2016/17 despite low prices. In addition, the world average yield is forecast to improve by 4% to 732 kg/ha, and world production could increase by 4%, from 22 million tons in 2015/16 to 23 million tons in 2016/17. Cotton area in India is forecast to rise by 4% to 12.4 million hectares and production by 10% to 6.5 million tons. High production costs in China make cotton less attractive despite high prices, and area in China is expected to decrease by 10% to 3.1 hectares in 2016/17. Assuming yield is the same as in 2015/16, production would fall by 10% to 4.6 million tons. Cotton production in the United States declined by 21% to 2.8 million tons in 2015/16 as the drop in cotton prices discouraged farmers from planting, but more attractive prices relative to competing crops could encourage farmers to return to cotton with area to expand by 2% to 3.3 million hectares. Assuming yield is similar to the five-year average, production could rise by 9% to 3.1 million tons. Pakistan’s production is forecast to increase by 35% to 2 million tons in 2016/17 assuming yield recovers from the 32% drop to 528 kg/ha in 2015/16.
After falling by 3% in 2015/16, cotton consumption is projected to remain at 23.7 million tons in 2016/17 as polyester prices will likely remain well below cotton prices. Cotton mill use in China, the world’s largest consumer, is projected down by 5% to 7.1 million tons and will likely decrease by an additional 5% to 6.8 million tons in 2016/17 due to its slowing economy. After contracting in 2015/16, consumption in India and Pakistan may recover in 2016/17 by 4% to 5.5 million tons and by 1% to 2.2 million tons, respectively.
The price projection for 2015/16 is based on the ending stocks/consumption ratio in the world-less-China in 2013/14 (estimate), in 2014/15 (estimate) and in 2015/16 (projection), on the ratio of Chinese net imports to world imports in 2014/15 (estimate) and 2015/16 (projection). The price projection is the mid-point of the 95% confidence interval: 66 cts/lb to 74 cts/lb.
|WORLD COTTON SUPPLY AND DISTRIBUTION|
| || || || || || || || |
| ||2014/15||2015/16||2016/17|| ||2014/15||2015/16||2016/17|
| || || || || ||Changes from previous month|
| ||Million Tons|| ||Million Tons|
| || || || || || || || |
|Ending Stocks||22.09||20.40||19.59|| ||0.00||0.07||0.20|
| || || || || || || || |
|Cotlook A Index*||71||70||71|| || || || |
The price projection for 2016/17 is based on the ending stocks/consumption ratio in the world-less-China in 2014/15 (estimate), in 2015/16 (projection) and in 2016/17 (projection), on the ratio of Chinese net imports to world imports in 2015/16 (projection) and 2016/17 (projection). The price projection is the mid-point of the 95% confidence interval: 57 cts/lb to 87 cts/lb.