At any other time in history, world ending stocks of 96 million to 98 million bales would be catastrophic for cotton prices. But in 2014, cotton prices have remained relatively strong because the Chinese government holds more than half those stocks in its cotton reserve program.
Speaking at the National Cotton Council’s Beltwide Cotton Conferences, analyst Jarral Neeper discussed how those stocks could be so overwhelming to the world market on one hand and at the same time supportive, on the other.
Chinese ending stocks are expected to be up to almost 60 million bales at the end of the crop year, said Neeper, whose day job is serving as president of the Calcot producer-owned cooperative in Bakersfield, Calif. noted. Over the last three years, China has added almost 44 million bales to its stockpile.
“So now you know why prices haven’t collapsed as much as they could have; because one government entity is holding them,” he said. “In the rest of the world, outside of China, stocks are going down. They’re large, but at least they’re going down, and not excessively large.”
China’s cotton policy has become a quandary for the world’s cotton-producing countries not the least of which is for the Chinese themselves. Neeper showed a slide of a photo he said was taken inside a Chinese cotton facility in which a worker is clearly stuck in a piece of equipment. “They’re stuck. Their heads are stuck in a vise here, and they can’t quite figure out how to get out of it.”
One of the major reasons for the decline in world cotton stocks outside China is the relatively small U.S. crop that growers harvested in the fall and winter of 2013-14. With acreage falling to 10.2 million acres and continue adverse weather conditions in the Southwest and Far West, U.S. cotton production fell to 13.1 million bales.
The 2013 crop, the third smallest in the U.S. since 1988, has also helped keep an edge on U.S. prices. That and renewed interest from hedge fund managers was mainly responsible for the move of U.S. cotton futures from a low of 78 cents back to 84 cents at the beginning of the new year.
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