11 May 2012
China Drives Record Global Stocks
With the state reserve holding over three-quarters of
China’s stocks, and about 30 percent of world stocks going into the 2012/13 season, its unannounced
reserve policy will play a major role in the global market.
The USDA 2012/13 forecasts are based on the following assumptions: China will operate the reserve buying program in a manner similar to this season, but at a higher target price. As a result, a significant portion of the domestic crop will likely be purchased by the reserve. To fill the resulting gap between available supply and demand, some cotton is assumed to be released from the reserve and imports are likely to be restricted. This is in contrast to 2011/12 when record imports were allowed and reserve stocks swelled. The assumed net result is lower imports and higher reserve stocks by the end of 2012/13. With domestic prices maintained well above global cotton and man-made fiber prices, China’s mill demand is expected to fall, even as world demand recovers.
Any significant changes in the reserve policy from these assumptions will likely have an impact on China’s market situation, as well as the rest of the world.
For 2011/12, world consumption, production, and ending stocks are down marginally, mainly due
to historical adjustments to Pakistan’s balance sheet. Trade is raised due to higher imports by
China. U.S. season average farm price is marginally higher at 91 cents/pound.
For 2012/13, lower prices are expected to cause smaller world production down from last year’s record. However, production will surpass consumption for the third consecutive year. Consequently, global stocks and stocks-to-use will both set records. World trade is forecast down. Both U.S. production and exports are forecast up. The season average U.S. farm price range is projected at 65 to 85 cents/pound.
Monthly Average Cotton Prices
The U.S spot price and the A-Index has continued to show little direction in the last month.
2012/13 TRADE OUTLOOK
- U.S. exports are forecast at 12.0 million bales, up 600,000 on a larger crop.
- India’s exports are forecast at 4.2 million bales, down 5.3 million due to a smaller crop, higher domestic demand, and uncertainty about their export policy.
- Australia’s exports are forecast at 4.3 million bales, 400,000 higher on a second record crop.
- Brazil’s exports are forecast at 4.4 million bales, down 100,000 on a smaller crop.
- China’s imports are forecast at 14.0 million bales, down 7.5 million as reserve building slows.
- Bangladesh’s imports are forecast at 3.6 million bales, up 450,000 on recovering demand.
- Turkey’s imports are forecast at 3.0 million bales, up 700,000 on a smaller domestic crop and strengthening demand.
Trade Changes 2011/12
- India is 600,000 bales higher at 9.5 million on recent changes to their export policy.
- Brazil is raised 300,000 bales to 4.5 million on recent shipments.
- Australia is lowered 100,000 bales to 3.9 million as shipments slow.
- China is increased 1.0 million bales to 21.5 million on government stock building.
- Malaysia is raised 200,000 bales to 1.0 million on reported transshipments.
- Turkey is reduced by 200,000 bales to 2.3 million due to lagging imports.
- Bangladesh is decreased by 150,000 bales to 3.15 million on weaker imports.
- Egypt is lowered 100,000 bales to 300,000 on weaker demand.
- Pakistan is raised 100,000 bales to 1.0 million on a smaller crop.
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