December 2003 Edition:
USDA projects that by the end of MY 2003, world cotton stocks-to-use ratios will be at their lowest levels since 1993. The variation in stocks over the past decade is attributable almost exclusively to Chinese government policies. In the middle nineties, China propped up domestic farm gate prices by stockpiling excess production, even as sizable imports cut into demand for domestic cotton. Chinese stocks ballooned from just over 20 percent of their production to 120 percent by MY 1998.
With the situation untenable, the government abruptly changed course in MY 1999. In order to reduce stocks, it greatly reduced domestic price supports, shut off nearly all cotton imports and pursued policies to support textile production. In the first years after the policy change, the government also aggressively sold stocks at a loss. The draw-down in Chinese stocks shifted stocks to other countries and pushed down world prices. Good weather in China and other cotton-producing countries resulted in record production in 2001, depressing prices further.
Since MY 2001, Chinese stocks have approached more reasonable levels, and the world’s stock levels have gradually moved back to historical averages. China ended its effective ban on imports in MY 2002 and has continuously increased imports since that time. World prices have also gradually increased. Nothing indicates that China has the intention of returning to policies which would encourage another stock buildup. With reduced access to the cheap excess government stocks, however, Chinese millers may now find they are bit less competitive and accordingly Chinese cotton mill use may grow more slowly in coming years.
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TABLE OF CONTENTS
World Cotton Outlook
U.S. Cotton Highlights
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