China’s state reserve cotton auctions off to strong start; production seen lower

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Photo courtesy - Cargill

The long-anticipated sales from China’s State Reserve that began in May has seen strong demand with over 97 percent of the cotton being offered finding buyers, the United States Department of Agriculture said in in its latest global estimates report.

As of 7 June, 3.2 million bales (697,000 MT) had been sold. Foreign cotton, primarily U.S. and Australian, initially represented a majority of the cotton being offered, but the amount of foreign cotton has steadily been reduced and in the first week of June no foreign cotton was offered, it said in its latest World Agriculture Supply and Demand Estimates (WASDE).

Total sales of foreign cotton have nearly reached 300,000 MT, the reported limit for sales this auction cycle, the report said, adding that sales are made through a daily auction where a minimum price is set for each lot offered for sale.

A floor price is set each week based on the average of the previous week’s internal market price and the A-Index. The minimum price of each lot is the floor price adjusted based on quality. All of the cotton being sold has been regraded and weighed, the report said.

China announced that sales from the State Reserve would continue until the end of August, and that up to 2 million MT (9.2 million bales) could be sold. If sales were to continue at the same pace as observed so far, the entire 2 million MT could be sold by the time auctions end in August.

However, the report said, even these large sales would represent less than one fifth of the total amount believed to be held in the State Reserve (11 to 11.5 million MT). “Provided that any new reserve purchases are paired with additional sales for rotation, and assuming future auctions are similarly successful, the observed rate of reserve auctions will take at least 3 to 4 years to return stock levels to more typical historical levels, the report said.

This represents a slightly faster pace of stock reductions than was anticipated in June 2015, mainly due to larger-than-expected declines in domestic production. This month’s estimates reflect reductions of 1.3 million and 1.0 million bales, respectively, in China’s 2015 and 2016 cotton production, the report said.

Overview for 2016/17

  • World production and beginning stocks are forecast down, due to lower production in China in both 2015 and 2016.
  • Consumption is forecast down slightly, led by a decline in India.
  • Trade is raised slightly, largely on higher trade in India and Turkey.
  • S. beginning stocks are raised slightly. The U.S. season-average farm price forecast is unchanged at 57 cents/pound.

For 2015/16, world production is lowered, largely due to a smaller crop estimate for China, resulting in lower ending stocks.

Global trade is raised slightly. U.S. exports are unchanged at 9 million, while U.S. consumption is lowered marginally. The U.S. season-average farm price is unchanged at 58 cents/pound.

2016/17 Trade outlook

Major Importers:

  • Turkey is up 150,000 bales to 3.7 million on higher forecast mill use.
  • Egypt is boosted 125,000 bales to 450,000 on lower production.

Major Exporters:

  • India is increased 200,000 bales to 4.0 million on greater available supplies.
  • Uzbekistan is raised 100,000 bales to 2.2 million on the size of its available supplies.

2015/16 Trade outlook

Major Importers:

  • China is hiked 250,000 bales to 4.5 million on slightly higher demand.
  • Turkey is increased 100,000 bales to 4.0 million on record-setting recent imports.

Major Exporters:

  • India is boosted 150,000 bales to 5.9 million on continuing strong shipments to major partners.

 

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