Chinese in Control of US Cotton Market

A cotton meeting wouldn’t be complete without Joe Nicosia of Louis Dreyfus Commodities and his cotton market outlook. Nicosia made his annual appearance at the annual Beltwide Cotton Conference in San Antonio on Tuesday, and explained that the cotton market is completely dependent on China:

“China is the most important thing. It would be great to stand up here and tell you what I think about prices, but at the end of the day it all depends on China. One decision out of them changes the entire world’s focus and price by easily 20-30 cents.”
 

Nicosia demonstrates the leverage China has on US production and subsequent marketing:
 

“Today we are faced with cotton prices in the mid 70s. Two things for higher prices: if they issue more import licenses to try to create more competitiveness by their textile industry, their reserve buys more import cotton and prices are going up. The US balance sheet, how much cotton we have left in the US, is not all that great which is why we are able to stay in the mid 70s. If they do step up and buy an extra 2-4 million bales, the US will be a beneficiary of that, prices will move up quickly. However if China doesn’t do that and no longer imports substantial quantities, what is the world going to do with its surpluses?”
 

So, Nicosia explains that a reduction in acres in 2013 might not be all that bad:
 

“The lower prices would provide incentives for growers to reduce acres and that would bring us back into equilibrium. It would also encourage mills to switch back to cotton from polyester. It would allow manufacturers to lower their prices of goods and the consumer would get more for the same amount of money and increase consumption again. The longer China holds on to this policy and the longer they hold on to increase their stocks, the worse and more dire the situation will become. We have to revive cotton consumption.”
 

What does this mean for prices? Nicosia explains:
 

“When the market place switches to the focus of tight free stocks, it gets nervous and the market moves up. That’s when you should be pricing your cotton. You will have some scares. You will have people who will focus on the amount of free stocks that are available and not total stocks. It wont be a full out bull market. Keep your options open for 14-15. A lot can change in the world very quickly.”
 

Joe Nicosia, Executive Vice President of Global Platform, head of cotton for Louis Dreyfus Commodities at the Beltwide Cotton Conference, going on now through Thursday in San Antonio.


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