China Cotton Monthly Review - December, 2013

In the year of 2013, influence of global financial crisis was still perceivable in China. Cotton demand shrank due to raw material structure adjustments undertaken by Chinese textiles to confront the current difficulty. Cotton price however, maintained at relatively profitable level for growers, supporting by national cotton reserve policy, which acted as a double-edged sword and reduced market activity. The No.1 Document from the national central government in 2014 announced cotton target price subsidy trial in Xinjiang, aiming at decoupling the cotton price with government subsidy, and returning the price generating power to market.
Cotton supply: cotton acreage in China continued to decline in 2013, which was 69.93 million mu (4.66 million hectare), down by 6.6% than last year according to China Cotton Association statistics. The general weather conditions of this year was in the upper level, though the unit yield not as good as last year, and national lint output was 6.77 million ton, 12.5% down Y/Y. According to National Bureau of Statistics (NBS), national lint production was 6.31 million ton, 7.7% down over the year. Cotton import of 4.15 million ton in 2013 was the second high in history, 19.2% less than last year; the full duty import witnessed noticeable growth. By the end of November, 2013, reserve cotton released for auction and by the end of December, 257,000 ton of cotton was sold from reserve stock.
Cotton demand: in the context of inactive global consumption especially in EU and Japan, increasing labor cost, appreciation of RMB and large cotton price gap home and abroad, Chinese textile competitiveness weakened relatively. According to NBS, industrial added value by textile enterprises above designated size in 2013 increased by 8.7%, the expansion rate reduced by 3.5% Y/Y; major textile production continued to increase, including 41.34 million ton of chemical fiber, up by 8.1%, and yarn production of 30 million ton approximately; export value of textile and apparel was 284 billion USD, 11.4% more than last year, the increase rate was 8.6% faster Y/Y; domestically total value of retail sales for apparel and accessory, knitting textiles achieved at 1.14 trillion Yuan, 11.6% more than last year, increase rate of which reduced by 6%.
Cotton market: domestic cotton market price movement was quite limited due to the dominant reserve policy in 2013. During the period before new cotton season, which commenced since 1st September, CC Index328 moved between 19,100 – 19,400 Yuan per ton. After the implement of new cotton quality system entering the new season, CC Index 3128B changed between 19,400- 19,700 Yuan per ton.
Cotton reserve: since the start of 2013/14 season, reserve purchase dominated cotton market. By 31st December, the 2013/14 seasonal reserve purchase accomplished by 4.85 million ton, around 70% of the seasonal yield. Supported by reserve, seed cotton procurement processed slower than last year due to postpone of the harvest and the price was higher compared with the corresponding time last year. By the end of 2013, national seed cotton yield was sold by 87.5%, 5.2% slower Y/Y. During September to December, average buying price from big ginners for seed cotton in major standard quality was 8.78 Yuan per kilo, 3.4% up Y/Y. During the reserve business, 9 trade frauds for selling reserve cotton back to reserve, 11 groups of reserve cotton rejecting list was exposed by China Fibre Inspection Bureau by the end of December.
Cotton planting intention in 2014: according to December planting survey conducted by CCA, nearly 50% cotton growers intend to maintain last season’s acreage, 40% planned to reduce or still undecided, only 10% growers prepared to increase it for the new season. According to cotton growers in survey by weighted mean, planting intention reduced by 8.9% nationwide. Analysis believes cotton planting cost increase and low comparative profit with other crops together offset the limited buying price rising, therefore, inland acreage
On 19th January, No.1 Document from national central government “Projection on Comprehensively Deepening Rural Reform and Advancing Agriculture Modernization” was announced. According to the document, Chinese government will adhere to market price founding mechanism, explore the reform on decoupling agriculture product price with government subsidy, build target price system for agriculture product, provide subsidy to consumers under high market price and to producers under market price lower than target price. In 2014, Xinjiang cotton target price will be launched for trial.