China’s Cotton Industry Continues to Grow at a Rapid Rate

Feb 01, 17 China’s Cotton Industry Continues to Grow at a Rapid Rate

Approximately 29 million tons of cotton are produced annually, but the demand for the product in China is now experiencing record highs. In fact, the country’s voracious desire for the fabric is producing its best rally in almost half a year.

This year, Chinese consumers have committed to buying approximately five times more American cotton than they did at this same time last year. The price of the commodity is set to reach its largest monthly advance since July 2016. That’s good news for the U.S. agricultural industry.

According to data from the U.S. Department of Agriculture, American cotton growers are expected to ship the most cotton this season since 2013. In addition, purchases in Indonesia and Vietnam are contributing to sales growth. Despite the push in sales, cotton futures in New York are trading steadily at approximately 65% below the 2011 record. This has left cotton prices at an affordable level for consumers.

Arlan Suderman, the chief commodity economist for INTL FCStone Financial Inc. in Kansas City, has been keeping track of cotton markets for over 30 years. Suderman explained that at the moment, U.S. cotton is “very competitively priced” in the global marketplace.

It’s estimated that consumption will outstrip cotton production by approximately 1.24 million metric tons in 2017. This data comes from Cotlook Ltd., a Birkenhead, England-based research company. The USDA estimates that this high rate of consumption will help reduce approximately 90.6 million bales of global cotton stockpiles.

In addition to purchasing cotton from the U.S., China has just merged its state cotton and grain reserves. This merger will create the biggest agricultural product group in China, according to the nation’s state media outlets.

The State Council approved the merger between Cotton Reserves Corp. and China Grain Reserves Corp., known as Sinograin, in January. The new company born of the merger will have combined assets adding up to 1.47 trillion yuan, which is approximately $213 billion in U.S. dollars.

Demand for cotton just keeps increasing, which may lead U.S. farmers to increase the number of plantings. A recent Bloomberg survey revealed that U.S. sowing could rise almost 7.6% in 2017.

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