USDA in its latest report warns that countries with policies that support prices above the world levels may in turn reduce their export competitiveness for both cotton and textiles, especially yarn and fabric.
China’s new cotton import policy has triggered a downtrend in global cotton prices with the A-index dipping below 70 cents in early October, a level not seen in past five years.
This has led to a variety of responses by other countries designed to support cotton producers. While some of the policy responses are new actions, others are the result of existing policies which had been dormant during the period of relatively higher prices.
For the past three years, China’s cotton support program has been the dominant government policy supporting global cotton prices. However, China’s shift from a price support to an income support policy has caused an abrupt fall in world prices.
“The A-index dipped below 70 cents in early October, a level not seen in last five years,” USDA informs.
With stocks outside of China expected to increase 16 percent and global import demand falling 15 percent, these policies could have significant impacts on which countries will end up holding higher stocks.
In India, the report informs, world prices are now below the Minimum Support Price (MSP) level. If there is significant purchasing and storage of cotton under the MSP, domestic prices could rise above the world level resulting in higher stocks
In Pakistan, the government has authorized the Trading Corporation of Pakistan to purchase cotton in an effort to support local prices. If effective, this could reduce exports of yarn, especially to China, it informs.
In West Africa too, cotton prices have fallen below the minimum producer prices set by various governments. If there is reluctance to incur losses under these programs, exports could be restricted.
USDA further warns that, countries that provide direct support to producers, which do not affect prices, may see effects on the timing of exports.
In the US, falling prices have activated the marketing loan program which is intended to encourage sales of cotton at market clearing levels, and thus could be helpful in maintaining US export market share.
In Brazil, the government has initiated payments to producers under the Prêmio Equalizador Pago ao
Produtor (PEPRO), cotton auction program which may encourage producers to sell sooner.
“For 2014/15, world ending stocks are forecast higher due to a larger carrying, as increases in consumption nearly offset higher production. World trade is lower and US production is down and with unchanged consumption and exports, ending stocks are down,” USDA informs.