China at it Again

As we noted back in our winter blog series on the current cotton market, China and India have played a major role in shaping the currently pricing situation faced by Georgia cotton farmers. There is no need to re-explain the policies of China and India as those were covered at length in the previous blogs (click China or India above to view those blogs).

Recently, China is back at their current ever-increasing distortion of the market. On June 9th, the Wall Street Journal posted a great article about the global glut of cotton and how prices are suffering. The article did note that prices have stabilized around the mid 60 cent range but that traders are constantly looking at China and India for market signals. Well a day or so later they got one of those signals when China announced that it was going to sell some of its cotton reserves. Of course, as noted in the previous blog, this dropped the price of cotton even though there were no actual sales of cotton by China. China, just by an announcement with no concrete plans, can move the market a penny or two in just one day.

Previously, most industry folks said that the reserves are a big deal but releasing the reserves wouldn’t cause major havoc in the market because China couldn’t release a lot of cotton at once because of their WTO obligations. Well, I don’t think they have complied with their WTO obligations for the last five years so it wouldn’t surprise me if they didn’t comply now. While no one really thinks that China will dump a lot of cotton on the market at once, it appears that they could do it and the WTO still would take no action. This is astonishing.

Hopefully the up and coming WTO consultations between the U.S. and China, over many things including cotton, will result in all actors in the market playing by the same rules. The U.S. cotton industry has made tremendous strides and jumped many hurdles in complying with our WTO commitments…it’s time that other countries do the same.

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