China Quota Cut Leaves Cotton Market ‘In a Coma’

Cotton futures tumbled after China, the top cotton consumer, revealed it will slash import quotas, amid reforms aimed at reversing the country’s build-up of huge inventories of the fiber, according to Agrimoney.com.

Declines in cotton contract prices followed the announcement by China’s National Development and Reform Commission (NDRC) that the country will issue just 894,000 tonnes of levy-free import quota for 2015, the minimum permitted by agreements with the World Trade Organization.

Actual imports have been greater than quota levels, at 3.08 million tonnes in 2013-14, and 5.34 million tonnes in 2011-12, swollen by the premium of Chinese prices—supported by a guarantee of elevated values for growers—compared with those on the international market. However, China has already ditched its guaranteed price regime in favor of a system based on paying direct subsidies to cotton farmers. The vice head of the commission’s economy and trade department said that the NDRC “will not issue additional import quota” but will instead focus on “domestic textile companies to use more Chinese cotton.”

At U.S. broker Keith Brown & Co., Keith Brown said China’s stance represented a dramatic turnaround from the previous two-or three seasons, “when China was the sole support…for the US market.” He noted that India is expected to overtake China this season as the world’s top cotton producer, and is already the second-ranked exporter after the U.S.

With U.S. production prospects waning, in part due to recent storms in the southern U.S., and the USDA cutting by 210,000 tonnes its forecast for the domestic harvest, Brown said cotton now is trending lower and likely will be “in a coma for a little while.” S