Cotton stocks outside of China are expected to increase 16%

Cotton stocks outside of China are expected to increase 16%

Countries with policies that support cotton prices above the world level could be reducing the competitiveness of their cotton and textile exports - especially yarn and fabric - a new report suggests.

The US Department of Agriculture (USDA's) monthly report showed that China's cotton support programme has been the dominant government policy supporting global cotton prices for the past three years. However, its shift from a price support to an income support policy has caused an abrupt fall in world prices.

"The A-index dipped below 70 cents in early October, a level not seen in five years. This has triggered a variety of responses by other countries designed to support cotton producers. Some of the policy responses are new actions in response to lower prices, while others are the result of existing policies which had been dormant during the period of relatively higher prices."

With stocks outside of China expected to increase 16% and global import demand falling 15%, these policies could have significant impacts on which countries will end up holding higher stocks, the USDA noted.

In India, world prices are now below the Minimum Support Price (MSP) level. If there is significant purchasing and storage of cotton under the MSP, domestic prices could rise above the world level resulting in higher stocks.

In Pakistan, the government has authorised the Trading Corporation of Pakistan to purchase cotton in an effort to support local prices. If effective, this could reduce exports of yarn, especially to China.

And in West Africa, prices have fallen below the minimum producer prices set by various governments. If there is reluctance to incur losses under these programmes, exports could be restricted, the report noted.

The report also warned that countries that provide direct support to producers, which do not affect prices, may see effects on the timing of exports.

In the US, falling prices have activated the marketing loan programme, which is intended to encourage sales of cotton at market clearing levels, and thus could be helpful in maintaining US export market share. In Brazil, the government has initiated payments to producers under the Prêmio Equalizador Pago ao Produtor ( PEPRO) programme, which could encourage producers to sell sooner.

"For 2014/15, world ending stocks are forecast higher due to a larger carrying, as increases in consumption nearly offset higher production. World trade is lower. US production is down; with unchanged consumption and exports, ending stocks are down," the USDA said.