Cotton Crops Slumping Most Since 1993 as China Buys

Cotton harvests are heading for the biggest drop in more than two decades as farmers from the U.S. to India reduce planting and China increases demand for higher-quality imports.

Crops will tumble 11 percent, the most since 1993, to 23.2 million metric tons in the year beginning Aug. 1, data from the International Cotton Advisory Committee show. Farmers will reduce sowing to 31.58 million hectares (78 million acres), a 7.7 percent decline and the largest in 11 years, according to Washington-based ICAC, which represents 41 governments. By July 2014, stockpiles will shrink 4.9 percent to 15.9 million tons, the first reduction in four years, the group’s data show.

Prices that slumped 62 percent from a record in 2011, prompting farmers to switch to soybeans and corn, are poised to rally 14 percent to 95 cents a pound by the end of 2013, according to the median of 16 estimates from analysts and traders compiled by Bloomberg. China is buying higher-grade American and Australian fiber for textile makers at cheaper prices than domestic supplies and sitting on lower-quality local stockpiles to subsidize farmers.

“China will want to import some cotton that the world doesn’t have to give next season,” said Peter Egli, director at Chicago-based Plexus Cotton Ltd. “Prices will have to go higher to satisfy mill demand and China imports,” he said in a telephone interview.

Bullish Wagers

The most-active cotton futures advanced 11 percent to 83.1 cents this year on ICE Futures U.S. in New York, the best performer among 24 raw materials on the Standard & Poor’s GSCI Index. The commodities gauge climbed 5 percent and the MSCI All-Country World Index of equities rose 4.9 percent. Treasuries lost 0.8 percent, a Bank of America Corp. index shows.

Money managers are gearing up for a rally. Bets on price gains in futures and options outnumbered wagers on declines by 59,138 contracts as of Feb. 5, the most since Oct. 12, 2010, data from the Commodity Futures Trading Commission show.

While global cotton output is tumbling, consumption will increase 3 percent as the world economy recovers, leading to a shortage for the first time since 2010, according to ICAC.

Farmers in Spain begin planting the first crops of 2013 this month. The U.S. will follow in March, then China, Egypt and Central Asia in April, South Asia in June, Australia and Argentina in September and Brazil in October, according to the U.S. Department of Agriculture’s crop calendar.

Soybeans, Corn

In the U.S., the world’s largest exporter, planting will slump 16 percent this year to 10.32 million acres, the least since 2009, according to the average of 13 analyst estimates compiled by Bloomberg. Acreage may plunge 27 percent as farmers shift to more profitable crops, the Memphis, Tennessee-based National Cotton Council said on Feb. 9.

A farmer in Arkansas, the third-largest cotton-growing state in U.S., can earn $385 an acre growing corn this year and $320 on soybeans, based on an analysis of prices and costs as of Feb. 8 by the University of Arkansas division of agriculture. Even after a rally in prices this year, cotton would fetch only $200 an acre, according to the December study of surface-irrigation farms, the most common type in the state. The figures exclude land costs, including rent.

Cotton production in Texas, the top-growing U.S. state, will decrease in 2013 as year-long drought conditions that prevented grain planting begin to lift in some regions, said Darren Hudson, the director at Texas Tech University’s Cotton Economics Research Institute.

“If we don’t have a drought to keep yields down, we’re going to flood the place with corn,” Hudson said in a phone interview from Lubbock, Texas. “Producers are looking at corn and grain sorghum as those prices are attractive.”

Australia, India

Upland cotton planting in the western high plains of Texas, a dry area, will probably fall to 3.7 million acres from an estimated 4.2 million acres the year before, according to Steve Verett, executive vice president at Plains Cotton Growers, a group in Lubbock representing more than 1,000 producers.

In Australia, the fourth-largest shipper, sowing will tumble by 19 percent for next crop, while in India area will drop 7 percent, the ICAC estimates dated Feb. 5 show. Farmers in all seven top shippers, including Brazil, Uzbekistan, Greece and Burkina Faso, will reduce plantings, shrinking the acreage to the smallest in four years, the data show. These early estimates for 2013-2014 are revised every month, ICAC said.

Imports Expand

Growth in China, the second-largest economy and the top cotton user, will accelerate to 8.3 percent in the third quarter after ending a two-year slump in the last three months of 2012, estimates from economists compiled by Bloomberg show.

Chinese imports jumped 75 percent in December from the previous month to 532,177 tons, a third monthly gain and the longest run of increases since September 2011, customs data show. Foreign purchases will reach 3.05 million tons in the year through July, 12 percent more than the 2.72 million tons predicted in January, the USDA said Feb. 8.

Retail sales of garments, footwear and textiles in China advanced for a fifth straight month in December, the longest expansion in almost two years, statistics bureau data show.

“Textile makers, especially those of us who are export-focused, have little choice but to use machine-picked high-end imported raw material,” Kong Jia, a manager at Hebei Xindadong Textiles Printing & Dyeing Co., said by phone from Shijiazhuang in northeastern China. “The government is trying to offload part of the huge stockpiles, but textile makers aren’t enthusiastic about buying that cotton because the quality and price aren’t attractive.”

Growing Stockpiles

While China’s growth is accelerating, Standard & Poor’s said Jan. 31 it has the highest risk of a downturn among 32 of the largest economies and the International Monetary Fund forecasts a second year of contraction in the euro area. Cotton use fell 11 percent in 2008-2009 during the global financial crisis, USDA data show.

China stockpiled a record 6 million tons for reserves in the first five months of the 2012-2013 year, which began in September, or 88 percent of the nation’s output, the official Xinhua News Agency reported last month. Purchases were 3.12 million tons the previous year, according to the government.

Inventories are set to climb to about 9 million tons this season, enough to meet the production shortfall for the next six years, Joe Nicosia, an executive vice president at Louis Dreyfus Commodities, the world’s largest cotton trader, said at a conference in Hong Kong in November.

Supplies from state reserves were sold at 19,179 yuan a ton or $1.40 a pound, according to the National Development and Reform Commission. That’s 70 percent more than prices in New York of 82.52 cents at 11:11 a.m. in London, data compiled by Bloomberg show.

“If I thought there was any quality in those stockpiles I’d be sweating more,” said Jack Scoville, vice president at Chicago, Illinois-based Price Futures Group Inc. “But it’s borderline unusable so that doesn’t concern me.”

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