growers@sgcotton.com.au Roger Tomkins - Greenmount Press

documented, the Chinese state reserves absorbed over 3.1
million tonnes of raw cotton from the domestic 2011–12 crop
between September 2011 and March of this year, to which must
be added import purchases by the same organisation estimated
at well over one million tonnes. Thus, an amount equivalent to
over 80 per cent of the surplus is effectively in control of the
Chinese government.
Its intentions in respect of this huge accumulation of cotton
are thus of paramount importance to the dynamics of global
supply and demand, and the direction of prices. Both the
domestic and import purchases were concluded at prices well in
excess of those currently prevailing on the local market, which
in turn are well above world values. When the current policy
was unveiled in March 2010, international prices were above $2
dollars per lb, and the authors of that policy could doubtless not
have foreseen the radical shift in price relationships that ensued.
An intractable problem
In pondering its next policy initiative, Beijing has thus faced
an intractable problem in seeking to reconcile the interests of all
its cotton ‘stakeholders’ – especially if one includes the national
exchequer in that category. The predicament of the domestic
spinning industry appears particularly acute, as mills struggle to
compete with mills abroad that enjoy raw cotton replacement
costs far below those with which they must contend.
Cotton yarn imports have risen strongly in recent months, and
may exceed an unprecedented one million tonnes this year. The
government may be wary of undermining the local market: it is
interesting to note that even the supportive intervention policy in
marketing
place during 2011–12 could not prevent a reduction in the area
planted to the 2012–13 cotton crop. Moreover, only a month or
so remains before the government is committed to begin buying
of the domestic 2012–13 crop, at an intervention price that is still
further above the current local or international parities.
At the time of writing, in early August, speculation is rife
as to government intentions for the disposal of a portion of
its accumulated reserves on the domestic market, perhaps in
conjunction with an additional import quota for use by exportorientated
spinners. The eventual release of cotton is presumed
to have bearish implications for the international market, simply
because it implies a commensurate reduction in Chinese import
demand during the 2012–13 season.
As the market awaits confirmation of Chinese intentions,
crop developments are under scrutiny in the major Northern
Hemisphere producing countries, where cotton is approaching
maturity. The United States Department of Agriculture’s August
crop report (the first of the season based on field surveys) is
expected to reveal the scale of abandonment in West Texas,
where relief from the prevailing hot, dry conditions has been
limited in recent weeks. Elsewhere, the principal focus of
attention is upon India, where deficient monsoon rains have
brought sowing to a standstill in some key producing regions,
and threaten to undermine yield potential.
India’s recent position in the international market, as the
benchmark against which asking prices for competing origins
must be measured, is thus not assured. The announcement in
June of quite substantial increases in next season’s Minimum
Support Prices for seed cotton may also prove of significance
August–September 2012 The Australian Cottongrower — 37