China and India made significant year-end purchases of California and Arizona cotton from Calcot, the Western 1,500-member marketing cooperative.
According to John Burch, Calcot's vice president of sales, Chinese buyers have placed the last of their 2004 import quotas orders which has resulted in a small rally in cotton prices. Burch declined to say how much cotton Calcot had sold to China and India at year's end. However, he acknowledged that China buys about a third of the cotton the Bakersfield, Calif., firm exports worldwide.
Most of the cotton sold recently is San Joaquin Valley Acala cotton some California/Arizona upland cotton, both of which have qualities unmatched by Chinese.
Calcot and other American cotton marketers are awaiting the announcement by the Chinese government the 2005 import quotes. They are expected in the next few weeks, and Burch expects China will come into the U.S. market in a “big way.”
India has also made strong inquiries for Pima cotton from Calcot, Burch said.
“The Indian crop is fulfilling a lot of that country's need for the coarser count and medium count cottons. But our fine counts and extra long staple cottons are getting a lot of interest from India,” he said. “They just don't have it there.”
China also as become a major market for San Joaquin Valley extra long staple Pima cotton. “China grows Pima, but not enough to satisfy demand,” said Burch.
Pakistan is currently the No. 1 market for U.S. Pima, but China “could easily overtake” Pakistan for the top spot, according to the Calcot marketer.
High end brands
China makes textiles for Ralph Loren and similar high end brands of not only clothing, but sheeting and towels as well. Many of these are licensed by the Supima Association to market under the well-respected Supima label.
“China is a growing Pima market and that is certainly good news for California cotton producers,” said Burch. SJV growers produce 90 percent of the U.S. Pima crop that this year is expected to generate 720,000 bales from 253,000 acres. California is projected to produce 650,000 bales from 219,000 acres.
“A lot of credit for the sales success of Pima into China and mills worldwide is the Supima licensing program. If spinners want to sell American Pima as Supima yarn, it has to be made from U.S. Pima cotton. That is driving a lot of demand, especially in China,” said Burch.
Tremendous expansion in textile mills there has prompted China to become an ever more hungry market for U.S. cottons and in particular, for high-quality California and Arizona cottons. About one third of Calcot's export sales of the 2003-04 crop went to China. Calcot claims to be the first U.S. firm to sell American cotton into China more than 30 years ago.
“Calcot continues to enjoy one of the best reputations of any shipper in the world to China. The biggest mills in China look to us to make purchases of Far West cotton. They are seeking us out to buy cotton,” he said.
Sales more tenuous
However, selling cotton into China has become more tenuous. Before the Chinese government allowed private investments into its textile industry, only government-run Chinatex bought imported cotton.
“There is a lot more uncertainty today with both buyers and sellers feeling each other out,” said Burch. Many of the new Chinese textile mills have been in business only a short time and often are owned by investors who “may not know the textile business so well.”
That has resulted in cases where mills have reneged on cotton sale contracts when the market declined to buy cotton cheaper elsewhere.
That situation is one reason Burch went to Beijing recently with a committee of U.S. exporters to discuss international trade rules with Chinese textile representatives. The group met with the China Cotton Association and several other cotton and textile groups in China to try to draft rules that would be acceptable to all parties.
Calcot has not had any Chinese mills default on sales, but others have. “There are more Chinese mills on default lists after this season than there were at the beginning of the season.”
“It's going to be a long, protracted process but the Chinese are very cooperative,” Burch said. “However their trade is so decentralized now that it's going to be a long process to get the entire trade in China to back one set of trading rules.”
The primary focus of discussion on the trade rules is over the enforceability of the rules in China and the mechanics of shipping and communications.
China rules antiquated
“The Chinese currently are under rules which are antiquated,” Burch said. “They were last amended in 1982.”
New rules could be drafted as early as this month.
Trading rules are important, but do not create the anxiety in the industry import as quotas into the U.S. for Chinese textiles. Basically, all quotas went off Jan. 1.
“There are a lot of people concerned at that and rightfully so when you realize domestic cotton consumption has fallen from 11 million bales to just 6 million bales in a very few years.” This has been attributed primarily to Chinese imports into the U.S.
Burch said there are many opinions about the end of Chinese quotas, but he does not expect it to be the “devastating death knell” for the U .S. textile industry.
“I don't think U.S. consumption will get much worse than it is right now. I think you will see it stabilize at the five- to six-million-bale level and there will not be the devastating effect some people are predicting.”