MY11/12 domestic cotton production is forecast at 7.3 MMT, down from the previous forecast of 7.38 MMT due to yield losses following September rains in some cotton-producing regions. MY11/12 cotton consumption is forecast to fall slightly from 10MMT in MY 10/11 to 9.9 MMT. MY11/12 cotton imports are forecast at 3 MMT, up from 2.6 MMT in the previous year.
THIS REPORT CONTAINS ASSESSMENTS OF COMMODITY AND TRADE ISSUES MADE BY
USDA STAFF AND NOT NECESSARILY STATEMENTS OF OFFICIAL U.S. GOVERNMENT
Required Report - public distribution
GAIN Report Number: CH11055
China - Peoples Republic of
Cotton and Products Update
M. Melinda Meador and
MY11/12 domestic cotton production is forecast at 7.3 MMT, down from the previous forecast of
7.38 MMT due to yield losses following September rains in some cotton-producing regions.
MY11/12 cotton consumption is forecast to fall slightly from 10MMT in MY 10/11 to 9.9 MMT.
MY11/12 cotton imports are forecast at 3 MMT, up from 2.6 MMT in the previous year. MY12/13
domestic cotton planting is likely to decline as farmer?s switch to higher profit crops, particularly
in the Yellow River region in MY11/12.
MY11/12 domestic cotton production is forecast at 7.3 MMT, down from the previous forecast of
7.38 MMT due to lower than expected yields following rainy weather in some cotton-producing
regions in September. Forecast MY11/12 cotton consumption is 9.9 MMT, down from the 10
MMT in MY10/11 mainly due to slow demand recovery for textile products by major importing
regions although domestic demand continues to grow. MY11/12 cotton imports are forecast at 3
MMT, up from the 2.6 MMT in the previous year. Domestic cotton planting is likely to be
challenged by other crops in MY12/13 as surveys shows farmer?s income from cotton is
disadvantaged in particular in the Yellow River region in MY11/12.
Governmental policy on cotton production and trade remains unchanged.
MY11/12 domestic cotton production forecast at 7.3 MMT
The November forecast for MY11/12 domestic cotton production is 7.3 MMT, down 80,000MT
from September?s forecast. The drop reflects lower yields due to extended rainy days in the
Yellow River region (including Shandong, Hebei and Henan Provinces etc) and some parts of the
Yangtze River region, with industry production forecasts ranging from 7.2 MMT to 7.55 MMT.
The China Cotton Association (CCA) November forecast remains unchanged from the previous
month at 7.28 MMT based on planted area of 5,345,500Ha. China?s Ministry of Agriculture (MOA)
projects 7.2 MMT based on its agricultural information network. China State Cotton Reserve
Corporation (Cncotton.com) adjusted its forecast to 7.55 MMT from its September data of 7.85
MMT, down 3.8 percent, with estimated planting area unchanged at 5,295,000 Ha. More
specifically, production is forecast at 2.43 MMT in the Yellow River region (down from September
data 2.62 MMT), up 21 percent over the previous year; 1.55 MMT production for the Yangtze
River region (down from September data 1.62 MMT), up 19.6 percent over the previous year; 3.55
MMT for the Northwest region (slightly lower than the September data of 3.59 MMT), up 21.8
percent over the previous year.
According to China?s Meteorological Report, the Yellow River region received, on average, 77
fewer hours of sunlight and 71 mm more rainfall in September, with a temperature 1-4 degrees
centigrade lower than normal, causing a deterioration in quality. Parts of the Yangtze River
region temperature and sunlight hours were also lower than normal impacting cotton maturation
and weight of the cotton balls. The weather condition in Northwest remained ?good,? generally
favorable for cotton maturation and harvest from September. During October and November, the
weather conditions were reportedly good in most cotton-producing regions with adequate
sunlight and temperature facilitating cotton harvest and transport. The following chart shows
Post estimates of China?s Domestic Cotton Production by Major Provinces in MY10/11 and
MY11/12 (in 1,000 MT).
Marketing of MY11/12 cotton remained slow
The harvest of MY11/12 crop has been generally smooth. Cncotton.com reported that as of
November 11, the harvest was 87.8 percent complete. According to industry sources, as of
November 21, the harvest rate reached 82 percent in North Xinjiang but only 75 percent in South
Xinjiang, 100 percent in Shandong and Hebei, 90 percent in Hunan, and 88 percent in Anhui.
Industry insiders report that due to shortages of labor and increases in labor costs, machine
harvesting in Xinjiang increased moderately and expedited the harvest pace (estimated to account
for 14 percent of total production). But mechanized harvesting benefits are accompanied by
losses not faced by hand picking, contamination of left-over plastic sheeting and higher
percentages of short fiber content.
The marketing of the crop, however, remains slow as farmers? high expectation for seed cotton
price contrasts with ginners/traders cautious approach due to their thin to negative profits.
Currently, the government?s suggested seed cotton price stands at about RMB8.5/Kg (which
converts to grade 328 cotton price at RMB19,800/MT), however, the ginning profit could be
negative based on the current seed cotton price. Cncotton.com?s survey indicates, as of November
11, the seed cotton marketing rate and the ginned rate stood at 66.4 percent and 50.4 percent,
down 6.7 and 11.4 percent respectively, from the most recent four year?s average, while the
marketing of ginned cotton was 25.5 percent, 3.9 percent higher than the recent four?s average
somehow driven by the ?State Purchase for Reserve? program started in October. As of November
22, total purchase for state reserve reached 738,810 MT, of which 523,680MT is Xinjiang origin
and 215,130MT from other provinces. Despite the government?s policy of ?purchase without
volume limit?, the smaller than planned daily purchasing volume indicates the current marketing
pace remained slow. The increased production cost, coupled with yield decline, in particular in
the Yellow River region, continues to slow the marketing pace of the MY11/12 crop. The state
reserve purchased cotton is tentatively stored in local warehouses. Xinjiang Railway Authority
reported that the planned 210 railcars per day (capacity of 9,030 MT roughly) for shipping cotton
fell short of this target due to demands from other transport loads such as fertilizer.
On November 11, China?s National Development and Reform Commission (NDRC), in
collaboration with other seven agencies, published Notice on Promoting Marketing of MY11/12
Domestic Cotton, which requires promoting marketing of the crop by all relevant agencies to be of
great significance for maintaining a stable cotton production.
Based on China Fiber Inspection Bureau (CFIB), as of November 22, total CFIB classified volume
reached 2,243,298 MT (Xinjiang ? 1,790,785 MT and others ? 452,213 MT). The cotton
classification program (introducing large bales and phasing out small bales completely in 2010) is
challenged by the scattered small-scale household farming and some spinning mills preference for
the smaller bales at lower cost.
Cotton planting likely to be disadvantaged in MY12/13
Despite the government?s efforts to set a pre-harvest floor price to secure favorable returns,
farmers are generally unsatisfied with the current purchasing price for seed cotton which ranges
from RMB7 to 8.5 per kilogram based on the grades. According to Hebei Cotton Association, the
total output value is estimated at RMB25,200 per hectare based on farm-gate seed cotton price of
RMB8 per kilogram and an estimated yield of 3,150 Kg per hectare. This output value is even
lower than the total costs for physical inputs and the minimum 300 labor days per hectare. For
rented land (at an estimated fee of RMB5,625 per hectare), the average per hectare loss is
estimated at RMB1,425. Dezhou and Shandong cotton associations also report lower cotton profit
compared to grains (with lower labor costs) and casual work in cities. In Tianjin, four large cotton
farmers, with 267 hectares of rented land for cotton, complained that they would lose $950/Ha
based on the declined yield (down 33 percent) and the current seed cotton price (down 33
percent from the previous year). China?s industry leaders argue that, if the government wants to
maintain a stable cotton planting area,
the floor price ratio between grain and cotton should be 12 to 1 instead of the current estimated
10 to 1 based on the production costs of grain and cotton.
MOA vows to maintain domestic annual cotton production at above 7 MMT
In the recently published ?The 12th Five Year Plan for Crops Plantation?, MOA set a target to
maintain annual cotton production above 7 MMT based on planted area of 80 million Mu
(5,333,000Ha) to meet the domestic demands for cotton textile products. Maintaining a
reasonable cotton price and profit for farmers remains key to stable cotton production. More
specific measures include stable production areas in the Yellow and Yangtze River Regions,
boosting Xinjiang area (24 million Mu); increasing yield through technical extension/innovation
in water management, including increasing coverage of drip irrigation and plastic film covering in
Xinjiang; promoting new varieties such Bt and high quality cross bred varieties and modest
increases in planting density; promoting mechanized farming to improve efficiency.
MY11/12 cotton consumption growth remains stagnant
China?s cotton consumption in MY10/11 was estimated at about 9.9 MMT, down from the 10 MMT
in the previous year mainly due to lower demands from major overseas cotton textile importing
regions. The price fluctuation since the third quarter of 2010 also led to a decline in cotton share
and consumption in MY10/11. Many spinning mills, in particular the small to medium ones, were
forced to suspend full or part operations to manage risks when the yarn spinning profit fell to
zero or negative. This situation has not shown significant improvement in the first few months of
MY11/12. In an effort to reduce production costs, many mills opted to substitute fibers in the past
months (polyester, viscose, flax, bamboo etc), and currently many mills are still trying hard to use
their high priced cotton and yarn stocks purchased and processed at high prices. In Henan, the
local industry survey shows high yarn stocks for mills, with the highest stocks reaching two
According to China?s National Statistics Bureau (NSB), yarn production for the first three months
of MY11/12 was 7.7 MMT, up 5.4 percent over the same period in the previous year, and lower
than the 8.8 percent growth rate in MY10/11. China?s industry data show that from January to
August, total textile and garment export volume increased merely 2%, although value increased
25 percent over the previous year. The textile and garment export value in September fell by 9.7
percent over August. Orders from overseas markets remained weak for the traditional high
season of Christmas and New Year. In addition to the appreciation of Chinese currency, other
production costs continued growing including labor, power, environment and capital. The
government?s tight financial policy is squeezing small to medium scale mills in their search for
capital. Although China?s domestic textile consumption maintains steady growth in concert with
continuing high GDP growth in MY10/11 and expected growth in MY11/12, cotton consumption
in MY11/12 is likely to fall from the previous year.
MY11/12 cotton imports are forecast at 3 MMT
Post forecast MY11/12 cotton consumption at 3 MMT, up from the 2.6 MMT in the previous year.
This is based on the estimated supply gap for MY11/12 and expected imports to replenish the
state cotton reserve stocks which were estimated to have fallen to 200,000 MT at the end of
MY10/11. Many industry insiders predicted that the government would add reserve stocks to a
level ranging from 2 to 3 MMT to match normal cotton consumption demand. Anecdotal news
reported that China's Cotton Reserve Corporation purchased 800,000 MT of imported cotton and
will likely add another 200,000 MT before the end of 2011. NDRC and CCA forecasted the supply
gap at about 2.8 MMT in MY11/12 and believe this will continue in the long term. Domestic
cotton production is unlikely to sustain its level with limited land available for cotton and a
governmental priority for food security production. Cotton price fluctuation, coupled with higher
production cost/risks, adds more uncertainty to cotton planting area. However, the huge textile
capacity of over 120 million spindles (accounting for 50% of world total) continues to drive
cotton consumption and boost imports in the long term. Some cotton imports for export-oriented
processing are likely to be impacted by the lower demands from major textile importing markets.
China?s relevant ministries, in collaboration with China Textile Industry Association, formulated
the 12th Five-Year (2011-2015) Plan for Cotton Textile Industry. The plan sets guidance targets
for the sector with total fiber production at 55 MMT and per capita fiber consumption at 19Kg in
2015 with yearly fiber production growth at 6%. The yarn production target is 34.5 MMT in 2015
from 27.4 MMT in 2010.
Cotton related policy remains unchanged in the foreseeable future
The cotton textile industry complains that their industry continues to use the most expensive
cotton in the world as the government tends to protect domestic farmers income by setting a floor
price and controlling cotton imports through a TRQ regime. The cotton textile sector competes
with industries in other countries which use cotton resources from the whole world at market
prices. Both NDRC and CCA argue that an era of cost driven ?high cotton price? has already begun,
and the Chinese industry will have to adjust its production strategy to be profitable through
technical innovation. The government?s priority is to promote a healthy development of the
industry chain. The TRQ regime remains an important policy to maintain domestic cotton
production. Given the lower government financial support to cotton farmers (as compared to
grain producers), the ?purchase cotton for state reserve at floor price? is also a necessary policy. A
stable to growing cotton planting area is also in the benefit of the textile industry in meeting
cotton demand and stabilizing price.
Other support policies include the continuation of railway transport subsidy to cotton and yarn
shipped from Xinjiang, of which the rate increased to RMB500/MT of cotton (from the
RMB400/MT in past years). The government also established a reference farm-gate price for seed
cotton based on the RMB19,800/MT for grade 328 cotton. Gin/trader seed cotton purchased
below the basic farm-gate price should not be sourced as ?state reserve?. NDRC added that the
government has a comprehensive plan for purchasing the MY11/12 crop for reserve with
?unlimited? volume, and arranged appropriate funds and warehousing capacity (currently up to 2
MMT storage capacities).
NDRC emphasized that the relevant government agencies and industry leaders should work
closely together to report more reliable data thus facilitating the distribution of additional cotton
TRQ (total volume, time, volume/time and pace) for MY11/12.
PSD (in 1,000 bales and 1,000 Ha)
China 2009/2010 2010/2011 2011/2012
Market Year Begin: Aug 2009 Market Year Begin: Aug 2010 Market Year Begin: Aug 2011
USDA Old New USDA Old New USDA Old New
Official Post Post Official Post Post Official Post Post
Area Planted 0 5,300 5,300 0 5,140 5,130 0 5,650 5,345
Area Harvested 5,300 5,300 5,300 5,150 5,140 5,130 5,500 5,650 5,345
Beginning Stocks 22,36 22,36 22,36 15,24 16,48 15,24 11,60 11,84 11,67
6 6 6 6 4 6 3 5 3
Production 32,00 32,38 32,00 30,50 29,39 30,50 33,50 34,58 33,53
0 1 0 0 5 0 0 5 0
Imports 10,90 10,90 10,90 11,97 15,61 11,97 14,00 16,53 13,78
3 4 3 9 6 9 0 5 0
MY Imports from U.S. 0 3,399 3,581 0 4,143 5,479 0 4,593 6,800
Total Supply 65,26 65,65 65,26 57,72 61,49 57,72 59,10 62,96 58,98
9 1 9 5 5 5 3 5 3
Exports 23 23 23 122 46 122 50 46 50
Use 50,00 49,14 50,00 46,00 49,60 45,93 45,50 50,52 45,47
0 4 0 0 4 0 0 3 0
Loss 0 0 0 0 0 0 0 0 0
Total Dom. Cons. 50,00 49,14 50,00 46,00 49,60 45,93 45,50 50,52 45,47
0 4 0 0 4 0 0 3 0
Ending Stocks 15,24 16,48 15,24 11,60 11,84 11,67 13,55 12,39 13,46
6 4 6 3 5 3 3 6 3
Total Distribution 65,26 65,65 65,26 57,72 61,49 57,72 59,10 62,96 58,98
9 1 9 5 5 5 3 5 3
Stock to Use % 30 34 30 25 24 25 30 25 30
Yield 1,315. 1,330. 1,315. 1,289. 1,245. 1,294. 1,326. 1,333. 1,366.