Questions related to cotton price direction remain centered on Chinese cotton policy that has supported Chinese prices at levels far above those from other countries around the world. Among the principal questions for 2012/13 prices are whether China will release cotton from reserves and how active China might be on the international market. In each of the last two crop years, the time period for the government purchases that enforce the minimum price policy has been between September and March. While the time period has been consistent, the pace has not. According to the latest data available at the time of publication (December 11th), the cumulative volume of cotton purchased during the 2012/13 crop year was over 3.7 million tons (more than 17.0 million bales). Last crop year, the total amount of cotton bought during the entire September to March period was 3.1 million tons (14.4 million bales).

 

To provide some context for the volume of cotton that has moved into reserves thus far into the 2012/13 crop year, it represents more than half of the Chinese harvest forecast (31.5 million bales). With such a large proportion of the crop moving into government warehouses, and with the cotton held in reserves unavailable to the market, the current supply of cotton to Chinese mills could be considered tight. This is especially the case when quality is considered, since the reserves have primarily absorbed higher grades of cotton. Given this tightness, it becomes apparent that decisions to increase available supply should be made in coming months. Whether this decision involves release from reserves or an increase in imports could be expected to impact world cotton prices. 

 

Since the USDA began issuing estimates for the 2012/13 crop year, it has assumed the Chinese government will choose a middle path and supply mills with a combination of fiber released from reserves and imported cotton. In their latest report, the USDA increased their import figure for China by 500,000 bales, which does not indicate a significant change in their assumption. At its current level of 11.5 million bales, China is forecast to import less than half the record volume from last crop year (24.5 million bales). The record volume of imports in 2011/12 could be seen as a result of the Chinese government deciding not to release from reserves and to meet mill demand through imports. If a similar decision is made this crop year, world cotton prices could be expected to rise since stocks in exporting countries would be drawn lower.

 

Other revisions in USDA estimates included a series of changes in production figures. The projected harvest for Australia (-250,000 bales) and the U.S. (-190,000) decreased, while additions were made to estimates for Benin (+150,000), Burkina Faso (+125,000), Cameroon (+100,000), and Mali (+100.000). Globally, these revisions largely canceled each other out. The net change in world production was only 70,000 bales, bringing the global harvest figure to 116.9 million bales. The figure for world consumption was also relatively unchanged, increasing 155,000 bales to 106.5 million. The only notable country-level revision was for Vietnam, where the mill-use figure increased 100,000 bales. 

 

Revisions to trade figures were more significant, with the world cotton trade forecast to be 1.1 million bales higher than previously estimated (from 36.6 million bales to 37.7 million). Export volumes from India (+500,000 bales), Brazil (+200,000 bales), the U.S. (+200,000), Benin (+125,000), and Burkina Faso (+100,000) were all revised higher. The most significant changes in import forecasts were for China (+500,000 bales) and India (+500,000). 

 

The world ending stocks forecast was revised 624,000 bales lower to 79.6 million bales. This decrease was largely a result of historical revisions to beginning stocks and resulted in a slight decrease in the global stocks-to-use ratio (from 75.5% to 74.8%). The Chinese ending stocks figure increased 500,000 bales to a record 37.6 million bales, which represents 47% of world ending stocks. While very high, this proportion is not unprecedented. In the 1998/99 crop year, China was estimated to hold 51% of world ending stocks. In the time since 1998/99, global consumption and imports have become concentrated in China. As a result, the importance of any eventual decisions regarding Chinese reserves and imports for world cotton prices may be without precedent. In coming months, announcements could be expected regarding import quota and the minimum guaranteed price level for 2013/14. These announcements, along with any other reports concerning Chinese cotton policy could be expected to heavily influence price direction.