Chinese cotton production hopes are being cut, as farmers switch to more profitable crops.
On Wednesday the Chinese Cotton Association (CCA) cut its forecast for the upcoming Chinese cotton harvest to 5.5m tonnes, from an earlier forecast of 5.86m tonnes.
This would leave cotton production 15% down from the 6.5m tonnes produced in 2014-15.
The fall in cotton production is the result of a lower planted area the CCA said.
Race for dirt
Chinese farmers have been switching away from cotton after the government reformed a price support programme, preferring corn which still receives generous government support, ensuring prices well above global levels.
A monthly survey of Chinese farmers showed cotton acreages down by 24% compared to last season.
But the CCA said that the effect of heat damage in northern China, particularly in the north west of the country, had been offset by a reduction in pest and disease pressure.
This month the USDA pegged expectations for this year’s Chinese cotton crop at 26m bales (around 5.66m tonnes), down from the 27m bales (5.88m tonnes) forecast in July.
The USDA saw last year’s cotton crop at 30m tonnes (6.53m tonnes).
But the USDA left its forecast for Chinese cotton imports unchanged at 5.75m bales (1.25m tonnes).
No import boost
Falling Chinese cotton production is unlikely to have much effect on plunging import demand, as long as thick domestic inventories and import quotas remain in place.
Imports have come under pressure this year as the government reduces quotas, in an attempt to boost demand for its ample stocks of domestic fibre.
Chinese July cotton imports were down 62.3% from a year ago at 105,700 tonnes, according to trade website Cncotton.com.
The government is restriction imports in an attempt to squeeze local supply, hoping to draw down the estimated 11m tonnes state inventory which was accumulated during the years the price support mechanism was in place.
The Chinese government bought up more than 80% of the domestic cotton crop between 2011 and 2013.
Beijing had aimed to sell as much as 1m tonnes of fibre from state inventories by the end of August, but attempts to shift the stockpiles at auction have made slow progress.
The government has only managed to sell 3.7% of the volume offered from its state reserves, after six weeks of daily sales.
Commercial inventories have yet to be exhausted, and government sellers are wary of pricing the product to move, in order to protect domestic prices.
Cap on purchases
But the slow pace of sales could also threaten domestic prices, if the government comes good on its plan to cap new crop purchase at 40% of the volume shifted at auction.
Chinese cotton auctions could eventually have ramification for world cotton prices if the government decides to link imports to purchases from state reserves.
This would incentivise buyers to take on government cotton, in order to gain access to imported fibre to blend with the low-grade government product.
(Source – http://www.agrimoney.com/news/chinese-cotton-forecast-cut-as-farmers-reduce-planting–8693.html)