Analysis: Gauging recent Chinese policy changes on U.S., China cotton markets
Recent Chinese policy changes, along with overall reductions in Chinese stocks, could have major impacts on U.S. cotton farm prices, according to a study led by Texas Tech University agricultural researchers. However, their impacts on the U.S. cotton exports will be negligible.
"While imports by China decline, U.S. exports will be diverted to other textile producing countries, albeit at a lower price," said Darren Hudson, director of Tech's International Center for Agricultural Competitiveness.
China recently announced that it will not allow over-quota imports in 2015/16 beyond the 4.1 million bales quota, which is the amount required to offer at low duties under commitments with the World Trade Organization. This announcement came after the government introduced a trial subsidy program for cotton farmers in Xinjiang in 2014/15, to begin replacing the stockpiling policy that had been implemented for the past three years.
Considering that China is the world's largest cotton grower, consumer, and importer, any decisions involving cotton could have a major impact on the global cotton market. China has a major impact on global cotton markets through government policies due to its sheer size.
Traditionally, Chinese cotton policy functions through the operations of two primary tools: government reserves and an import quota. Aimed at stabilizing Chinese cotton prices and supporting domestic cotton farmers, the government of China designed and implemented a price support policy for the past three years which allows the government to purchase domestically produced cotton and build government reserves.
Three years' implementation of this policy has driven up China's state reserve to 13.6 million tons (62.7 million bales) at the end of 2013/14, accounting for 62 percent of global ending stocks. As the stockpiling policy is gradually eliminated, the Chinese government announced that it will provide a direct subsidy to cotton producers in Xinjiang in 2014/15 with a target price of 19,800 yuan per ton. Specifically, whenever the market price falls below the target price, growers in the trial areas will be compensated based on a combination of price difference between the target price and the market price, cultivated areas, yield and other factors.
CONTACT: Darren Hudson, Director, International Center for Agricultural Competitiveness, Texas Tech University, (806) 834-0546 or firstname.lastname@example.org
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