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China starts 2021 cotton state reserve sales
14 Jul '21
3 min read
Pic: Shutterstock
China began its 2021 round of sales from its cotton state reserve (SR) on July 5. The announcement implied 600,000 tonnes (2.75 million bales)—about a fifth of the estimated total held by the SR—would be made available till September end, the Foreign Agricultural Service (FAS) of the US department of agriculture (USDA) said in its July 2021 report 'Cotton: World Markets and Trade'.
The announcement indicated that sales would be limited to 2011/12/13 domestic stocks, the report said.
Total stocks are estimated to be around 1.5-1.7 million tonnes of foreign cotton (primarily US and Brazilian), 1.1 million tonnes of Chinese cotton from the 2011-2013 crops, and 375,000 tonnes from the 2019 crop.
The size of this season’s offering is only slightly higher than the 500,000 tonnes offered in 2020 and well below the 1 million tonnes made available in 2019.
This year’s sales mechanism is similar to previous years. Lots are offered every business day through an electronic auction platform. Minimum reserve prices for each lot are set based on domestic and international prices in addition to quality adjustments.
An additional mechanism was introduced this year—if domestic prices drop by more than 3.5 cents/lb in a three-day period, sales will be suspended until prices recover. Just under 10,000 tonnes have been offered each day.
These sales are part of a policy to rotate cotton held in the SR and will be partially offset by foreign cotton acquired by the SR in late 2020 and early 2021. Even if the entire 600,000 tonnes is sold, the size of the SR will increase this year as the amount of cotton acquired since the 2020 sales is believed to be more than the potential 2021 sales.
Over the last three years, the size of the SR has fluctuated around 2.75 million tonnes, roughly the amount that would be held if this season’s sales are robust.
China announced in May that 700,000 tonnes of Sliding-Scale import quota would be issued later this year; industry expectations are that the licenses will likely not be issued until after the SR sales end but before the arrival of the 2021 crop.
Therefore, the volume of 2021 SR sales will largely reflect the current level of demand for cotton in China.
For 2021-22, the July forecast shows higher consumption with lower trade and stocks. Stronger cotton yarn prices and profit margins are expected to support larger consumption in India and Vietnam. Brazil’s lower exportable supplies and smaller China SR imports are expected to shrink global trade slightly. Stocks are projected down more than 1.5 million bales, led by China and India, the FAS report said.
The forecast for the United States shows higher production, exports and ending stocks. The US season-average farm price is unchanged at 75 cents per pound.
The announcement indicated that sales would be limited to 2011/12/13 domestic stocks, the report said.
Total stocks are estimated to be around 1.5-1.7 million tonnes of foreign cotton (primarily US and Brazilian), 1.1 million tonnes of Chinese cotton from the 2011-2013 crops, and 375,000 tonnes from the 2019 crop.
The size of this season’s offering is only slightly higher than the 500,000 tonnes offered in 2020 and well below the 1 million tonnes made available in 2019.
This year’s sales mechanism is similar to previous years. Lots are offered every business day through an electronic auction platform. Minimum reserve prices for each lot are set based on domestic and international prices in addition to quality adjustments.
An additional mechanism was introduced this year—if domestic prices drop by more than 3.5 cents/lb in a three-day period, sales will be suspended until prices recover. Just under 10,000 tonnes have been offered each day.
These sales are part of a policy to rotate cotton held in the SR and will be partially offset by foreign cotton acquired by the SR in late 2020 and early 2021. Even if the entire 600,000 tonnes is sold, the size of the SR will increase this year as the amount of cotton acquired since the 2020 sales is believed to be more than the potential 2021 sales.
Over the last three years, the size of the SR has fluctuated around 2.75 million tonnes, roughly the amount that would be held if this season’s sales are robust.
China announced in May that 700,000 tonnes of Sliding-Scale import quota would be issued later this year; industry expectations are that the licenses will likely not be issued until after the SR sales end but before the arrival of the 2021 crop.
Therefore, the volume of 2021 SR sales will largely reflect the current level of demand for cotton in China.
For 2021-22, the July forecast shows higher consumption with lower trade and stocks. Stronger cotton yarn prices and profit margins are expected to support larger consumption in India and Vietnam. Brazil’s lower exportable supplies and smaller China SR imports are expected to shrink global trade slightly. Stocks are projected down more than 1.5 million bales, led by China and India, the FAS report said.
The forecast for the United States shows higher production, exports and ending stocks. The US season-average farm price is unchanged at 75 cents per pound.
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