MUMBAI (Commoditiescontrol) - China cotton production during 2016-17 season that begins from August 2016, likely to drop 5.75 percent at 4.9 million metric tonnes (MMT) from 5.2 MMT a year ago, according to U.S attaché report.
The lower forecast is based on a 9 percent drop in planted area to 3.1 MHa. Introduced in 2014-15, the government’s target price support policy for cotton production has effectively reduced cotton profits and production in recent years. This support policy will continue during 2016-17. Specifically, the target price for Xinjiang lowered again to RMB18,600 ($2,906)/ton, down RMB500 ($78) /ton from 2015-16. This will further reduce cotton returns in Xinjiang and impact cotton planting intentions in MY16/17. Additionally, details on the “fixed subsidy” of RMB2,000 ($312.5)/ton for the other nine cotton producing provinces remains pending as of this report. Thus, some farmers in these regions may opt to plant alternative more profitable crops.
During 2015-16, cotton profits declined from the previous year in all the cotton-producing regions. Industry sources report that 2015-16 profits were affected by a lower target price of RMB19,100 ($3,081)/ton offered to Xinjiang compared to the RMB19,800 ($3,220)/ton in 2014-15 and the minimum price of RMB20,400 ($3,290)/ton received in 2013-14. Although production costs remained generally stable, a decrease in returns due to lower prices, and lower yields due to unfavorable weather conditions contributed to the reduction in cotton profits. Xinjiang’s official sources report a 21 percent decrease in the 2015-16 cotton output value and 150 percent drop in profits, compared to the previous year.
2015-16 seed cotton price also fell in response to the government’s lowered target price and a relatively lower quality crop. Yield was also affected by hot and dry weather in July resulting in falling bolls. Overall, Xinjiang cotton earnings for 2015-16 are estimated to be lower than the average level of earnings received over recent years.
USDA forecasts 2016-17 total planted area will continue to fall 9 percent to 3.1 million hectares (MHa) from the 3.4 MHa in the previous year. Specifically, the Xinjiang planted area is forecast to fall by 4 percent to 1.88 MHa, and the rest to fall by 15 percent to 1.22 MHa.
According to the implementation details of the new support policy enforced in 2014-15 and 21015-16, areas not certified and designated by the government for cotton planting were not eligible to receive support payments. This will discourage cotton planting in this province in 2016-17.
Xinjiang provincial agricultural official state that 2016-17 cotton planting intentions are down 135,000 Ha. This exceeds the Xinjiang government plan to reduce the cotton area by 100,000 Ha in 2016-17. As a result, grain crops such as forage corn and wheat, cash crops including tomato, peanuts and watermelon are likely to replace cotton in Xinjiang.
China is expected to hold 61 percent of world cotton stocks, an estimated record 14.8 MMT, at the beginning of 2015-16. Stocks are forecast to fall to 13.83 MMT at the beginning of 2016-17 mainly given the expected use of some state stocks.
Government purchases of more than 16 MMT of domestic cotton at higher prices during 2011-12 through 2013-14 combined with weak cotton consumption contributed to China’s cotton stocks level. Forecast low cotton imports and the likely sale of cotton stocks at market-oriented prices are expected to reduce stocks in 2016-17.
As of this report, the majority of the stocks are held by the government and are estimated to exceed 11 MMT and priced high ranging from RMB19,600 ($3,160)/ton to RMB20,400 ($3,290)/ton. This has created a widening gap between international and domestic prices and has left the government with excess stocks unlikely to sell without incurring large losses. Mills, on the other hand, continue to keep stocks at low levels to minimize losses resulting from possible price fluctuations.
(By Commoditiescontrol Bureau; +91-22-40015533)