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02 March 2012

USDA GAIN: China Cotton Market UpdateUSDA GAIN: China Cotton Market Update

Several surveys conducted in China show MY 12/13 cotton planting area intentions are lower than previous years following lower profits for MY 11/12 crop and sluggish demand from a recovering domestic textile industry. China has been supporting the domestic floor price of RBM19,800/MT with purchases for state reserve and believed to be supplementing stocks with imported cotton as well. China’s National Statistics Bureau (NSB) announced MY11/12 domestic cotton production is 6.6 MMT based on planted area of 5.04 MHa, up 10.7 percent and 190,000Ha, respectively, over the previous year.

General Information:

MY12/13 cotton planting intention surveys show decline in area

On Feb 22, 2012, the China Academy of Agricultural Science (CRI), Cotton Research Institute, based on a January survey, reported a 6.1percent fall in MY12/13 cotton planting intentions to 4,846,000 Ha, a dip from CRI estimated area of 5,416,000 Ha in MY11/12.

The three main cotton-producing regions all show a planting area decline:

- Yangtze River Region down 4.1%,
- Yellow River Region down 8%
- Northwest Region down 3.4%

  • North Xinjiang down 2.7%,
  • South Xinjiang down 3.3%.

The following table shows the area changes by Province:

Province Xinjiang Shandong Henan Hebei Anhui Hubei
Change -3.4% -13.5% -2.7% -10.3% -1.4% +1.3%
Province Hunan Jiangsu Tianjin Gansu Jiangxi Nation
Change -4.3% -14.6% -13.6% -13.2% -0.2% -6.1%

On January 17, China Cotton Association published a December survey showing MY12/13 cotton planting intention decline to 78 million Mu (5.2 MHa), down 10.5 percent over the previous year as a result of the sharp fall in prices for MY11/12 crop. Their survey showed:

  • Yangtze River Region: down 10.8%
  • Yellow River Region : down 16.5%
  • Northwest Region: down 5%

A previous survey by National Cotton Market Monitoring Network showed 2012 cotton planting intention down 8.2 percent from the previous year to 72.49 million Mu (or 4,863,000 Ha).

Lower planting area predictions could cause total cotton production to fall below the government’s basic production target of about 7 MMT. To minimize planting area reductions and encourage farmers to plant cotton, the government may announce a new purchase floor price for the MY 12/13 crop (likely RMB20,400/MT) by the end of February, however, Post believes the MY12/13 floor price will likely remain unchanged at RMB19,800/MT. Plentiful stocks, a sluggish textile industry slowing consumption and a profit last year aren’t conditions which favor a Government increase of the floor price.

MY12/13 planting intention drop due to lower profits

In MY 11/12 a 30 percent drop in seed cotton prices, which averaged $1,180/MT, coupled with a 21 percent increase in production costs, caused profits to fall by 58.5 percent to $1,134/Ha. The table below reflects farmers earned a profit with their MY 11/12 crop but less than in MY 10/11. Government purchase of MY11/12 crop at the floor price without any volume limits has currently stemmed the drop in the cotton price.

China’s huge cotton reserve remains an uncertainty for trade

China maintains a cotton reserve as a means to regulate domestic cotton supply/demand and protect domestic farmer’s income. China’s state cotton reserves fell to a low level in 2011 after the government released a large portion of its reserve to curb a historic price spike.

March 2012

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