China's plan to slash cotton imports next year has dealt one of the biggest blows yet to US farmers' hopes of a sustained recovery in prices, raising further fears the policy overhaul may roil global trade and curb demand. China said on Monday it will cut imports next year to 894,000 tonnes, or 4.1 million 480-lb bales, the minimum required under World Trade Organisation commitments.
It is the country's latest bid to move away from a stockpiling program that has propped up the global cotton market since 2011. The cuts would nearly halve the US government's forecast that China would import 8 million bales for the 2014/15 crop year, which began on August 1. US prices sank on the news.
New measures may still be announced to lift overall imports higher, but market participants say the plans will erode China's appetite for foreign cotton and encourage local mills to use domestic supplies. Cotton for March delivery could fall to 50 cents, said Louis Rose, an independent cotton trader and consultant at Risk Analytics in Tennessee. It closed at 62.48 cents a lb on Tuesday.
"The intentions are clear," said analysts for brokerage INTL FC Stone. China has stored enough cotton in strategic reserves over the past three years to feed domestic mills for two years. Prices have plunged 25 percent since May to below break-even for most US farmers as concerns have mounted over the impact of Beijing's new policy.
China said in January it intended to discontinue its stockpiling program, signalling the end of a years-long buying spree by the world's top cotton consumer. Jerome Vick, who has been farming in Wilson, North Carolina, since 1975, said he may not plant any cotton next year for the first time in nearly two decades. "We put all our dependence on strong demand from China," Vick, said in an interview. His family has dedicated a portion of its 6,000-acre (2,400-hectare) farm to cotton since the mid-1990s.
The latest news came days after China reaffirmed the target price for its subsidy program, widening the gap between the Chinese market and the rest of the world. To be sure, weaker prices allow fibre to compete with synthetics and provide some relief to mills, which have complained that China's government policy has boosted prices even as the global market remained in surplus. Prices may still recover some ground by the time growers start marketing the US cotton crop, the biggest in two years.
But few expect them to return to recent highs. Before May, prices had not been below 78 cents since January 2013 and were as high as 96 cents in March this year. Vick said that his cotton production costs are 70 to 75 cents a pound, although good weather and yields will partially offset the price rout. He will get good prices for his sweet potato and tobacco crops.
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