Apparel Sourcing Intelligence - Worldwide

China announces cut in cotton prices after changes to subsidy policies

The China Cotton Association announced a 4.2% reduction, effective from April 1, in China’s base cotton selling price to RMB 17,250/tonne ($1.27 per pound)  from RMB 18,000 ($1.32) on March 24. The announcement followed changes in the  subsidy policies of the world’s two major cotton subsidisers announced in early 2014

Spot prices for cotton in New York fell 3-4% on the news of China’s price cuts, which were viewed as an effort to boost the sales of government-owned cotton and reduce imports. Beijing plans to complete its 2013-14 cotton stockpiling programme at the end of March and shift to a direct subsidy plan for the 2014-15 marketing year.

The USDA has projected China’s overall ending stocks this season at 12.6 mn tonnes,  million bales, almost 60% of record high world stocks and now well over a year’s use by Chinese mills.

Later in 2014, China will announce a target price for cotton grown in Xinjang (which the US Department of Agriculture expects to be around $1.35/pound)  , but elsewhere will let prices move closer to those elsewhere: USDA expect around $1.07.  China has given no indication of when this price will be announced.

Both USDA and the International Cotton Advisory Committee (ICAC: a committee of all cotton-growing governments except China)  expect China to try to reduce its stocks during 2014, keeping world prices little changed from the $0.90 per pound averaged in February 2014.

In the US – the largest exporter in 2012/13 – President Obama signed the 2014 US Farm Bill into law on 7 February. This abolishes most of America’s current cotton subsidies, but replaces it by a programme called the Stacked Income Protection Plan (STAX), subsidising upland cotton producers’ purchases of insurance policies that cover “shallow” revenue losses.

What effect this will have is unclear, though still controversial. It is still a subsidy to cotton growers (which most other producer countries, apart from China, cannot afford), but its effects are not so obviously damaging to everyone else that the approval of STAX has led the Brazilian government to reimpose sanctions.

Brazil’s cotton producers association, ABRAPA, said “the United States passed a new farm bill that is likely to cause major distortions in international cotton prices”, adding that retaliation is in order. But its Foreign Minister Luiz Alberto Figueiredo  said on February 19 “We’re going to continue to negotiate with the U.S. in search of a definitive solution…it’s more important to verify whether the new U.S. Farm Bill is in compliance or not with the norms established by the WTO cotton decision”, adding that Brazil will ask the WTO to establish a special panel to review the new US programme.