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USDA puts up strong forecast for China cotton

May '07
China's cotton use is forecast to continue to grow strongly in MY07/08, posting 12 percent growth for a second consecutive year. China's textile industry is expected to consume 12.3 MMT of cotton in MY07/08 based on both solid domestic and export demand. While industry investment remains strong, consolidation and government pressure to focus less on exports have acted to curb the over 20 percent yearly growth experienced following WTO accession and elimination of textile quotas.

Chinese domestic cotton production is forecast to fall four percent, to 6.5 MMT, following the record crop in 2006. Solid farmer returns last year are forecast to result in a three percent increase in planted area in 2007. While early crop conditions have been favorable and wide distribution of better seed varieties are have led to an above average yield forecast, total production is expected to fall following the exceptional yields of 2006.

MY07/08 imports are forecast to surge to 5 MMT in response to solid demand and the slow import pace in Q4 2006 and Q1 2007. This level of imports would be 50 percent higher than estimated MY06/07 imports, but only 20 percent above MY2005/06 levels. A resumption of large-scale imports is likely in the final few months of MY06/07 and will continue into MY07/08.

Surprisingly flat import levels following the fall 2006 Chinese harvest of their bumper crop led to a downward revision of MY06/07 imports from the initial forecast of 4.1 MMT to 3.35 MMT. Fundamentally, continued double-digit cotton consumption growth in China is outstripping China's productive capacity over time and will lead to a higher market share for imported cotton.

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