WORLD: New cotton policies contribute to flat prices
Uncertainties surrounding new government policies in two of the world's leading cotton players contributed to keeping prices flat in February.
While the Cotlook A Index for January averaged about 91 cents per pound - up from 85 cents per pound seen in November and early December 2013 - its midpoint remained at 90 cents per pound in February, month-end data shows.
The International Cotton Advisory Committee (ICAC) points out that changes to the agricultural policies, including cotton in the US and China were announced just ahead of planting.
In the US - the largest exporter in 2012/13 - President Obama signed the 2014 US Farm Bill into law on 7 February.
This replaces the Direct Payments, Countercyclical Payments and Average Crop Revenue Election (ACRE) programmes with the Stacked Income Protection Plan (STAX), which provides subsidies to upland cotton producers to purchase insurance policies that cover "shallow" revenue losses.
In China - the largest producer and consumer in 2012/13 - changes announced to its agricultural policies announced in January will see a target price programme for cotton. This will be limited to cotton grown in Xinjiang, China's largest cotton production base in the north-west of the country.
Despite a lack of details on the new policy, the group noted that the cotton growing area outside of Xinjiang is expected to decline in 2014/15, and China's overall area is expected to decline by 9% from last season to 4.2m hectares.
Cotton stockpiling by China has removed much of the excess cotton from the world market, keeping prices high and undermining the competitiveness of Chinese textile companies in the global market.
"The Chinese government has not yet announced what the official target price for cotton will be," the inter-governmental ICAC noted, adding that "it will take into account both the domestic price, which for the last few years has been pushed upward due to its state reserve policy, and the international price for cotton.
"It has also not announced how it will handle the significant stock that it already holds, but the Secretariat expects that it will aim for a slow controlled release."
In March, harvesting will be underway in the southern hemisphere while planting will take place in many countries in the northern hemisphere. In 2013/14, world area is estimated at 33.1m hectares and is expected to remain fairly stable in 2014/15 at 33m hectares.
World production is forecast to be 25.7m tons in 2013/14, a drop of 4% from last season, and is expected to fall again in 2014/15 by 1% to 25.3m tons.
World cotton mill use is projected to rise by 1% this season to 23.6m tons and by 3.5% in 2014/15 to 24.4m tons due to continued economic growth in Asia, where much of the cotton consumption takes place.
In 2013/14, world ending stocks are forecast to be 19.9m tons, more than 2m tons higher than last season; and in 2014/15, world ending stocks are forecast to rise for another season to 20.8m tons as production is expected to exceed consumption for the fifth season.
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