Green shoots for China's cotton stockpile?

Chinese authorities have stockpiled huge amounts of nearly every commodity this year, mostly in an effort to prevent prices from falling. Now that farmers have sold most of their harvest from last fall, they're looking for the right time to unload their stash.

In 2008, China's textile and apparel exports fell off a cliff. The weak demand translated to weak demand for cotton. China's State Council issued a document calling for policies to stabilize farmers' incomes and preventing downward pressure on farm prices that included buying cotton for reserves at a support price. The April cotton market report from the National Development and Reform Commission presents an optimistic picture after months of dismal news.

According to customs statistics, April textile and apparel exports were $12.49 billion, down 12.6% from last year, but up 2.7% from the previous month. The report says exports have been warming up since March. Textile exports for the 2008 cotton year could be $112.8 billion, down 1% from last year.

In April, the reserve purchases were completed. In all, 2.72 mmt of this year’s cotton had been purchased for reserves, of which inland cotton was 1.18 mmt and Xinjiang cotton was 1.54 mmt. That's roughly half the cotton crop. With that much cotton stockpiled, imports have been down sharply. April cotton imports were 146,000 mt, down 44.7% from last year. The report expects exports for the market year to total 885,000 mt, down 44%. However the report tells us that, with the 1% tariff, the cost of imported cotton averaged 10,447 yuan/mt, 2132 yuan lower than the domestic market price.

The report says reserve purchases helped domestic cotton prices rise quickly. In April, the average domestic seed cotton procurement price was 2.78 yuan/jin (582 yuan/dan for lint cotton), up 8.7% from the previous month. The inland cotton price was up 9.1% and the Zhengzhou exchange July futures price was up 6.7%. China's prices appear to be following the upward swing in international prices. The international price was up 13.9%.

Now the prices are coming back up a little, farmers have sold nearly all of their cotton, and there seem to be some signs of life in the textile industry, officials think it's time to start dumping their stockpile. Another NDRC report says that cotton reserves would start to be released into the market on May 31. A total of 1.532 mmt will be sold.